Half Year 2025 Dr Reddy's Laboratories Ltd Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Kunal Dhamesha - Macquarie Research - Analyst : Hi, thank you for the opportunity and congratulations on a good set of numbers. First one on the North America business. We have written that the sequential decline is primarily due to volumes. So sequentially, is it fair to assume that the pricing was stable?

Question: Kunal Dhamesha - Macquarie Research - Analyst : Okay. And this decline in sales volume, one you said is the channel inventory adjustment. And could it also be some seasonal products not kicking in this quarter?

Question: Kunal Dhamesha - Macquarie Research - Analyst : Sure. And then the second one on the India business. I know you have posted around 18% growth. But let's say, we remove the Sanofi vaccine business, would we be at the double-digit growth for our base business?

Question: Kunal Dhamesha - Macquarie Research - Analyst : Okay. So we have improved a lot from single digit to low double digit in this quarter?

Question: Kunal Dhamesha - Macquarie Research - Analyst : Sure. And then do you think that this can again accelerate beyond what we have done in Q2 in the coming quarter? Even the launch momentum has been very strong, right? We have been launching a lot of products in India?

Question: Kunal Dhamesha - Macquarie Research - Analyst : Sure. I have more questions. I'll join back the queue.

Question: Neha Manpuria - BofA Global Research - Analyst : Yeah. Thank you for taking my question. My question two part question is related to the US business. Given we have seen a host of facilities being cleared, clearing inspection in the last few months. When should we start seeing -- while we are launching products, we have not really seen high-value launches from Reddy's in the recent time. So when do you think we launched certain of these limited competition high-value products for the US business? When do we start seeing that? And second, our R&D has stepped up a fair bit. But I did see filing momentum has been fairly muted. So when does that R&D spend reflects in higher filing or higher-quality filing, better filing and therefore, revenue?

Question: Neha Manpuria - BofA Global Research - Analyst : And sir, the R&D spend, how much of this would be for biosimilars in the onco asset? And any updates that we can get on the timing for our two biosimilar filings?

Question: Neha Manpuria - BofA Global Research - Analyst : And we were supposed to find demo towards the end of this year. Are we on track of filing demo the US market?

Question: Amey Chalke - JM Financial Institutional Securities Ltd - Analyst : Yeah. Thank you for taking my question. My first question is on REVLIMID. So in first half, the whatever sales we might have booked for REVLIMID, you expect the sales to be similar in second half? Or you expect the run rate to be on the lower side?

Question: Amey Chalke - JM Financial Institutional Securities Ltd - Analyst : Sure. The second question I have, if you can tell us about the preparation for the GLP-1 products for both US and ROW markets, which are going to face expiring or where we are going to launch these products?

Question: Amey Chalke - JM Financial Institutional Securities Ltd - Analyst : Sure. Just last question I have on the spend. Our SG&A spend, excluding amortization or depreciation have gone up sharply over the last two to three years. I understand we have a big opportunity in US where we are generating good profits, which we are reinvesting in the business. But let's say, post FY26, you expect this SG&A spend to remain elevated like this? Or you expect some correction after?

Question: Harith Ahmad - Avendus Spark - Analyst : Hi. Thanks for the opportunity. My first question is on the rituximab biosimilar for which we got an EMA authorization recently. So will you be able to share some color on the timelines for launch and our expectations from this particular product? And for the same product in the US, I believe we are awaiting clearance of our facility in Bachupally, which is last inspected in October '23. So what is the status of that inspection? Do we have a final classification from the FDA? That's my first question.

Question: Harith Ahmad - Avendus Spark - Analyst : Okay. And on generic lowering for which we've disclosed the INR90 crore impairment this quarter. So can you share what percent of the intangibles related to this product has been impaired? What I'm trying to understand is whether this product is completely out of our expectations? Or do you still expect some revenues from this product?

Question: Harith Ahmad - Avendus Spark - Analyst : Okay, sir. Last one with the permission. The intangibles related to the Haleon portfolio acquisition, which I believe is around INR5,500 crore. Over what timeframe will we be amortizing this? I'm trying to understand the impact in our P&L.

Question: Damayanti Kerai - HSBC - Analyst : Hi. Thank you for the opportunity. My question is on R&D. So you mentioned you are focusing on high-quality R&D. So can you just talk us about like the segments or products which you are working on? And do you think you can launch some material products in, say, next one to two years in the US market especially, which can help you to cover up some sales lost on the REVLIMID part. So that's my first question.

Question: Damayanti Kerai - HSBC - Analyst : Sure. My related question is you mentioned peptide GLP-1 is one of your focus segment. So I just want to understand -- on the R&D part, I understand you are covering the entire product basket, which will open up in market in coming years. But on the manufacturing part, do you have in-house manufacturing capability or you intend to get it done through some manufacturing partners?

Question: Damayanti Kerai - HSBC - Analyst : Okay. So mostly, it will be done in-house and maybe some parts can be done through external parties?

Question: Damayanti Kerai - HSBC - Analyst : Sorry, I think I missed. So you said API is your strength, but the formulation that can be done through CMOs, is that right? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 05, 2024 / 2:00PM, REDY.NS - Half Year 2025 Dr Reddy's Laboratories Ltd Earnings Call

Question: Damayanti Kerai - HSBC - Analyst : Okay. Understood. My second and last question is on the Nestle JV. So you concluded the deal in August. Like what kind of sales or any number you have booked in second quarter? And from here on what kind of ramp-up you see in terms of like putting more products in the portfolio or in terms of revenue, how should we see updates there?

Question: Bino Pathiparampil - Elara Capital - Analyst : Hi, Good evening. Just following up on a previous answer. Abatacept, you said could be a launch in early '27. Did you mean calender '27?

Question: Bino Pathiparampil - Elara Capital - Analyst : Okay. And I was looking at the Russia growth adjusted for the currency fluctuations, it seems the first half growth in Russia is a bit muted, probably around the mid-single digits. Any particular reason? And what's the outlook for the rest of the year?

Question: Bino Pathiparampil - Elara Capital - Analyst : Okay. And one last question on PSAI. There is a lot of optimism in the market around the CDMO part -- CDMO business opportunity coming India's way. Are you seeing that helping your CSAI business in any way?

Question: Surya Patra - PhillipCapital (India) Private Limited - Analyst : Hello. Yeah, thanks for the opportunity. So my first question is on the Nicotinell business integration. So having completed the transaction, if you can share your thought process now about your growth plans, your integration strategy of this business across various markets and your margin and cost positioning for that business?

Question: Surya Patra - PhillipCapital (India) Private Limited - Analyst : Sure. Second question is about our CDMO business again because of the manufacturing base and positioning within ways, whether this Biosecure Act development, that will offer any kind of meaningful foot trend for our CDMO operation which has been kind of relatively muted or seeing a kind of muted performance since some time. Do you expect any meaningful kick start to those kind of momentum there?

Question: Surya Patra - PhillipCapital (India) Private Limited - Analyst : Okay. Just last one clarification for the US business growth. You mentioned you are seeing some volume-related impact in the quarter. But is it possible to give some sense, excluding of the lenalidomide, what is the kind of -- means, some color to the growth YoY for the quarter or for the first half? What growth that we would have seen for the base business?

Question: Surya Patra - PhillipCapital (India) Private Limited - Analyst : No, I wanted to just on a YoY basis sir for the first.

Question: Tarang Agrawal - Old Bridge Asset Management - Analyst : Hi. Good evening and congrats for a very strong set of numbers. Three questions. First on Russia. The INR600 crore investment in working capital, what's driving this now? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 05, 2024 / 2:00PM, REDY.NS - Half Year 2025 Dr Reddy's Laboratories Ltd Earnings Call And basically, just wanted to understand or get a bit more color on the business in terms of how working capital intensive is that business, some dynamics on the market. Some point, I think DRL had a 2.5% market share in that market. How has that moved? And what's the volume market share there?

Question: Tarang Agrawal - Old Bridge Asset Management - Analyst : It is just to get a sense, I mean, how big is the covered market in Russia where Dr. Reddy is operating? And I mean, it's a sizable business now almost $300 billion. So how big is the market? And my sense is that the end market may not be growing, but from your vantage, could you expect this business to grow at the same speed as which you probably see your India business growing?

Question: Tarang Agrawal - Old Bridge Asset Management - Analyst : Okay. Sure. Second on CapEx. Overall, if I see the trajectory over the last three, four years, we see a lot of investments in R&D buying products between market access and as intangibles. In terms of physical infrastructure, if you could give us a sense where are you in terms of your utilizations between your injectables, your oral solids and your API business? And what are the kind of investments that you're looking in terms of expanding your physical infrastructure from here on?

Question: Tarang Agrawal - Old Bridge Asset Management - Analyst : Sure. And last question on the Nestle JV. How long should the current capital contribution between you and the partner should hold the JV in good shape? I mean how far along will we see till further capital contribution of the JV?

Question: Kunal Randeria - Axis Capital Ltd. - Analyst : The first biosimilar launch in the US should be in May '24. Given that you are yet to file for it. Just wondering how many players do you expect will be ahead of you when you eventually launch.

Question: Kunal Randeria - Axis Capital Ltd. - Analyst : Right? And would this be like a late FY26 launch?

Question: Kunal Randeria - Axis Capital Ltd. - Analyst : Got it. Secondly, Erez, 2.5 years back when you share your -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 05, 2024 / 2:00PM, REDY.NS - Half Year 2025 Dr Reddy's Laboratories Ltd Earnings Call

Question: Anubhav Agarwal - UBS - Analyst : Yeah, thank you. Just one question on SG&A. So this year will be about 27.5% to 28%. Can you qualitatively give a sense that once I mean, more normalized stage, once the generic grave limit is more normalized, let's say FY27. Once you have ramped up by similar portfolios infrastructure for that, what would this number look like in a rough range? So when I look at pre-COVID, you guys were doing 29%, 30%. Would you go back to that or would you retain 27%, 28%? Can you give a rough sense in a more normal stage.

Question: Anubhav Agarwal - UBS - Analyst : Yeah, but next year you still have the support of generic REVLIMID. So I'm just trying to understand, one, let's say, one-off revenues are not there. On a more sustainable base business, what would this -- would you go back to recovered number 29%, 30%? Or would you still be at 28%?

Question: Anubhav Agarwal - UBS - Analyst : Sure. And you're saying that this is beyond next year as well, same range of 28% continues per year.

Question: Vishal Manchanda - Systematix - Analyst : On rituximab biosimilar launch in Europe, would you be selling on your own or you would have a partner there? And what is -- how long would you take to ramp that up to its full potential?

Question: Vishal Manchanda - Systematix - Analyst : Would this be a $100 million plus opportunity company?

Question: Kunal Dhamesha - Macquarie Research - Analyst : So just for abatacept timeline that we have given, it is for the biosimilar launch, not new indication that our partner is trying. Is that correct understanding?

Question: Kunal Dhamesha - Macquarie Research - Analyst : So abatacept, I think we are developing biosimilar, and we have out licensed is biosimilar to [Koia] for the indication of ALS, right? So the launch time line that we are talking about is for the biosimilar version that we are developing, right?

Question: Kunal Dhamesha - Macquarie Research - Analyst : And what stage of development are we on the biosimilar side in terms of the clinical trial or filing. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 05, 2024 / 2:00PM, REDY.NS - Half Year 2025 Dr Reddy's Laboratories Ltd Earnings Call

Question: Kunal Dhamesha - Macquarie Research - Analyst : So as of now, let's say, patient enrollment and all will be over? Do we have that details?

Question: Surya Patra - PhillipCapital (India) Private Limited - Analyst : Yeah. Just one clarification, sir. when we talk about the GLP-1 API capability. So here, we do say that it is complete end-to-end integrated at our end itself (technical difficulty)

Question: Surya Patra - PhillipCapital (India) Private Limited - Analyst : Yeah. We believe it is capabilities (technical difficulty) complete chain manufacturing capability that we have. And hence, it is a full end-to-end integrated operation for us.