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Edited Transcript of LUPIN.NSE earnings conference call or presentation 6-Nov-19 10:30am GMT

Half Year 2020 Lupin Ltd Earnings Call

Mumbai Nov 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Lupin Ltd earnings conference call or presentation Wednesday, November 6, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alok Sonig

Lupin Limited - CEO of US Generics & Global Head of Generics R&D & Biosimilars

* Kamal Kishore Sharma

Lupin Limited - Vice Chairman

* Nilesh Deshbandhu Gupta

Lupin Limited - MD & Executive Director

* Rajiv Pillai

Lupin Limited - Head of Business Finance

* Vinita D. Gupta

Lupin Limited - CEO & Executive Director

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Conference Call Participants

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* Anubhav Aggarwal

Crédit Suisse AG, Research Division - Associate

* Arjuma Begum

* Damayanti Kerai

HSBC, Research Division - Analyst, Healthcare and Hospitals

* Kunal Dhamesha

SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals

* Neha Manpuria

JP Morgan Chase & Co, Research Division - Analyst

* Nimish Nagindas Mehta

Research Delta Advisors, Research Division - Research Analyst

* Nitin Agarwal

IDFC Securities Limited, Research Division - Analyst

* Prakash Agarwal

Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals

* Rahul Sharma

KARVY Stock Broking Limited, Research Division - Analyst

* Saion Mukherjee

Nomura Securities Co. Ltd., Research Division - Head of India Equity Research

* Sameer Baisiwala

Morgan Stanley, Research Division - Executive Director

* Shyam Srinivasan

Goldman Sachs Group Inc., Research Division - Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Lupin Limited Quarter 2 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to the Lupin management. Thank you, and over to you.

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Kamal Kishore Sharma, Lupin Limited - Vice Chairman [2]

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Good afternoon, everyone, and welcome to this earnings call for Q2. I would like to start by saying that -- well, let me first introduce my colleagues here in the room who are here to answer your questions. I have Vinita with me; Nilesh; Alok Sonig, who heads the Generic Business in the U.S. as you might have known by now; Rajeev Sibal, head of India business. And we have Sunil Makharia here; (inaudible); Arvind Bothra; and Rajiv Pillai; and of course, Naresh Gupta, the Head of API Plus business.

I just want to start by saying that given the business climate, the competitive dynamics, the regulatory rigger and the risk development in the recent times has given the business of complex generics and specialty and biosimilars. I think the company has sent out good results. Year-on-year, the sales have grown by 10.5%, and the EBITDA has grown by about 11%. On a half yearly basis, the revenue growth is 13% and the EBITDA growth is 20%.

We continue to maintain EBITDA around 20% over the quarter that you would notice. And I think the entire team is dedicated to strengthening the business. There are 3 legs on which we are doing this. Continuously rationalizing and recalibrating our business mix, building operational efficiencies and investing in specialty business, which is the future of the company and the complex generics business.

With that, I would now hand it over to Rajiv Pillai, to give you financial heads up and then the floor will open for questions and answers. Thank you.

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Rajiv Pillai, Lupin Limited - Head of Business Finance [3]

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Thank you, Dr. Sharma. Good afternoon, friends. I'll give you a quick overview of the financial results for Q2.

Sales for the quarter came in at INR 4,297 crores, which represent a 10.4% growth compared to the previous year. H1 sales were at INR 8,653 crores, which is a 13% growth versus the previous year.

Notably the sales line includes the revenues from the licensing income with the contract that we enter with BI, Boehringer Ingelheim. We -- this time, we had 2 exceptional items, which are reflected in the results. Company agreed to pay $63.5 million as settlement in connection with Texas lawsuit, of which $53.5 million has been provided for. We only had a provision of $10 million.

During the quarter, we also recorded the divestment of Kyowa Criticare business, KCC, which is -- which was a noncore, [nonsynergistic] asset and nonvalue adding. This resulted in a loss on divestment of about INR 167 crores.

EBITDA came in at 20.1% for the quarter and net profit before exceptional items was INR 258 crores. Our investment in research continues, and that is 10% of the sales. And as we've committed, we continue to keep at the same levels as the previous years and less than 10% of the sales.

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Unidentified Company Representative, [4]

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We'll open it up for questions now.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of [Vishal Varya] from Aviva insurance.

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Unidentified Analyst, [2]

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Sir, could you share your thought on the price erosion on the base business in the U.S., please?

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Alok Sonig, Lupin Limited - CEO of US Generics & Global Head of Generics R&D & Biosimilars [3]

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This is Alok. So the base business stabilize in the U.S., the erosion is down to low single digits. And we feel pretty comfortable about the robustness of the base business.

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Unidentified Analyst, [4]

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Any large launches that you're planning for second half of this year?

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Alok Sonig, Lupin Limited - CEO of US Generics & Global Head of Generics R&D & Biosimilars [5]

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So one of the key launches, which was obviously late last fiscal early this year, Levothyroxine, so that will be ramping up as we look at the second half of this fiscal. We've already done over $10 million in the first half for Levothyroxine and that would be a significant ramp up. And we're looking at another 3 or 4 launches in balance of the year, which could be (inaudible)

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Operator [6]

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The next question is from the line of Neha Manpuria from JPMorgan.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [7]

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First, on the U.S. business. In the last quarter, we'd mentioned that Levothyroxine capacity would come on board towards the end of the year and that's when we'll see capacity ramp-up -- sorry, share ramp-up. So has that come on board earlier than expected, and we're expecting improvement in the U.S. in the second half?

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Alok Sonig, Lupin Limited - CEO of US Generics & Global Head of Generics R&D & Biosimilars [8]

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Yes. Neha, thanks for that question. So the supply has stabilized, and we've actually ramped up almost a year ahead of schedule. And so the supply is looking pretty robust. And that's the basis for my comment that we should see a ramp up in demand and (inaudible) improvement for second half of the year.

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Kamal Kishore Sharma, Lupin Limited - Vice Chairman [9]

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We talked about the capacity expansion kicking in early in the calendar year next year, and we're on track on that.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [10]

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Okay. So this capacity will still come on board early next year?

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Kamal Kishore Sharma, Lupin Limited - Vice Chairman [11]

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So we've already had a ramp up and further expansion is underway.

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Alok Sonig, Lupin Limited - CEO of US Generics & Global Head of Generics R&D & Biosimilars [12]

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So there's a ramp up just given choices we've made on the lines to shutdowns on other products, which are less valuable and devoted that for -- in favor of Levothyroxine. So that's really kind of in this fiscal. And then the next wave of -- just given the civil infrastructure expansion that kicks in early in the next fiscal. So supply won't be a constraint, in other words.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [13]

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And my second question is on ProAir, the CRL. Are we still maintaining guidance of approval before fourth quarter FY '20?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [14]

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So we feel pretty good, Neha, about our ability to respond to the CRL, pretty soon, in the next month. And we hope that we can get approval before the end of the fiscal year. But certainly, expect that first half of next fiscal year, we should be able to launch the product.

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Unidentified Company Representative, [15]

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So first quarter, if we're lucky. But I think probably it'd be outside, within the first half.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [16]

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Understood. And my last question is on SOLOSEC. Vinita, if you could give us some color on how that is ramping up and what was the branded sales in the quarter, please?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [17]

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So the branded sales were flat quarter-on-quarter, it was $5 million primarily a big part of it is SOLOSEC. In the other generic products -- Suprax had a generic and (inaudible) has a generic for that has been [eroding]. In quarter-on-quarter, we've seen a 10% growth in scrips so, obviously, scrips have now crossed the 2,000 mark. So it's good, it's in the right direction but a long way to go. So I'd say that's some progress but more to come. We have a number of efforts ongoing. We have got a new leader in place, Jon Stelzmiller who joined us just a month ago with a very strong experience on women's health as well as a very, very strong experience in launching products successfully. And have multiple tactics from a targeting standpoint, from a pharmacy standpoint to ensure that we grow the scrips, grow the demand as well as don't have any leakage at on the pharmacy end.

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Operator [18]

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The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [19]

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One clarity on this Texas payment of $63.5 million. Can you just roughly mention how much of the sales that we made here and which period does it pertain to?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [20]

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So the payment pertains to period prior to 2012 and that's the most substantial part of our business, in particular for Suprax. Texas was a very large state for the organization. I mean, we haven't really quantified how much of our business we do in Texas alone, but it was important for us to really put this lawsuit behind us.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [21]

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Okay. So now this is fully provided for. And no more surprises can come here.

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [22]

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That's right.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [23]

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And have we -- on the Levo, can you also talk about the competitive dynamics, let's say, now the number of players in the market, let's say, over the next 12 months, how are you expecting these? How many players or new generics are you expecting in Levo market?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [24]

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It's hard to tell which of the new players can ramp up their capacity. But as we look at the positioning of companies, we are: one of two, Mylan and us, are the only 2 that have -- are equivalent to all 3 RLDs, which is really critical to when you gain substantial share. So that puts us in a very good position, we think.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [25]

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Yes, yes. Absolutely. So no doubt about Lupin's ability to get to have good market share now, I was more worried only from a price discounting perspective. We have more number of guys come in, that's why we expected that initially, 2 quarters back, you mentioned like you are expecting about 1 or 2 more guys to come in over next 1-year period, that's why I was just taking update over there, that's it.

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [26]

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I think we still believe that there will maybe a couple of strong players in the next...

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Unidentified Company Representative, [27]

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I think the other good thing that we see is that clearly getting approval across the RLDs is important, and it will obviously have a significant head start and headcount. You've obviously not heard of other the approvals at this point of time. So I think it gives us the natural window.

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Unidentified Company Representative, [28]

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I think given the right (inaudible), it's a 6 billion units a year market, so the value is quite sticky and the pricing is, from our standpoint. And as we are also vertically integrated here with all the RLDs. So just from a quality of being kind of competitive space, we rate our ability to be robust. And we are working, obviously, with anchor strategies, with customers so that we are able to create more stickiness in this product.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [29]

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Just one clarity on this and this is my last question. On this, you only. When you can launch this product over last couple of quarters. Did we normally come as a normal generic, like, when a generic comes in, the [picks] of price erosion is about 15%, 20%. Given the dynamics in this market, we hear about some shortage of the Levothyroxine, very high-volume product. So what is the special case where the price erosion was less than typical or this was a typical (inaudible)?

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Alok Sonig, Lupin Limited - CEO of US Generics & Global Head of Generics R&D & Biosimilars [30]

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The price erosion in general, I would say, without giving, obviously, specifics, it's a bit less than your traditional generic. So that's the basis of the comment I made earlier that it is sticky from a value standpoint. Yes, and large volumes so you have to be sufficiently invested in this product to make it into the marketplace.

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Operator [31]

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(Operator Instructions) The next question is from the line of Nimish Mehta from Research Delta Advisors.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [32]

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Yes. And just only one clarification on Levothyroxine. We now have RLDs for both the -- where Suprax and (inaudible). Is that correct understanding?

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Unidentified Company Representative, [33]

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Suprax, (inaudible) and Levoxyl, yes, with 3 others.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [34]

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All 3. Okay, wonderful. And the other question actually on the domestic business. Again, wanted to know how much do you think is the impact of trade generics on our business? And in general, what do you think should be the outlook because of trade generics because of that increase in, basically in the industry?

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Unidentified Company Representative, [35]

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So if you look at Lupin's business is concerned, we have only 5% contribution coming from trade generics so 95% is our branded generics. So we do not see as such a problem as far as our business -- branded business is concerned. And that's how we have been able to show growth, which is 12.8%, which is always better than the market. And even H1 also, we are growing at 12.5%. The strength of Lupin as far as domestic business is concerned is it's portfolio because we are very strong as far as our chronic portfolio is concerned. The (inaudible) of our chronic portfolio is 60% versus (inaudible) of 40%. Whereas in the market, it is other way around. So because of our chronic portfolio, we have absolutely a good position to grow better than the market and that's what we're ellipsing.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [36]

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Are we not seeing any impact on the branded business with other companies, trade generic business, that's what I'm sensing.

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Unidentified Company Representative, [37]

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No, no, no. Not to that extent, that's where we revise. I think it's still very less and more in terms volume-wise but value-wise still 95% is branded business for us and, overall, outside of 90% branded.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [38]

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All right. Okay. Lastly, I just wanted an update on -- it's few quarters back, maybe a year back. We had been talking about input costs increasing, nonauthorized (inaudible) China effect. Are we now through that? I mean have we passed that? And now are the input costs pretty much stable? Is that a fair understanding?

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Unidentified Company Representative, [39]

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Sorry, can you repeat the question?

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [40]

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Yes. A few quarters back, we were talking about input cost increasing because of raw material cost increasing, especially with our -- the situation in China. So just wanted to know, are we now through that or are we still seeing some impact of that?

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Unidentified Company Representative, [41]

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So I think those increases stuck for the most part. I think they'll come down on the antibiotics side but other than that, those increases stuck. So I think they've become part of the new reality.

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Operator [42]

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The next question is from the line of Prakash Agarwal from Axis Capital.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [43]

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Yes. If you could help us, give us some update on the FDA status of -- across facilities. And I mean are you on track to close at least one as you last mentioned by this financial year?

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [44]

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So obviously, we're not overall happy with our track record. We have 4 sites that have an OAI [tracker], 3 of those have a warning letter. And obviously, it's impacting new approvals from those sites. We've had probably a dozen -- half dozen inspections which have been positive. But I think these are big meaningful sites where we have these issues.

I think on the Lupin side, I think we're just doing a much deeper exercise. I think we talked in another forum on quality first. It's a deeper project that we're doing, starting at our Pithampur site but extending to all sites, certainly all the OAI sites as well. And the idea is to do a much deeper quality transformation. It works on everything, from people, products, processes, access of everything. And I think the short of it, I think the answer is that in the first quarter -- first calendar quarter, we would expect to put 2 sites up to a team for reinspection. So we'll probably follow shortly, thereafter. And I think on Pithampur and Mandideep in particular, we'd like to take another quarter at least of deeper work before we put that up for reinspection. So I think putting up for reinspection likely in the first quarter, and then whenever the FDA comes and follows the process.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [45]

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Okay. First quarter calendar year you're saying?

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [46]

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Yes.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [47]

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And secondly, how do we look at our Japan business going ahead? I mean structurally speaking, we've been seeing price cuts every year now and margins are also lower than the company average. So how do we think about the business?

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Unidentified Company Representative, [48]

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So I think -- and in fact, we're going to have a -- we had a price cut in October, and then we're going to have another one end of the financial year. So this year, it's going to hit us twice actually. But first of all, the EBITDA margin is equal -- pretty much equivalent to the company average. As you know, Japan is obviously going through a pressure, so I think obviously the intent is to optimize on cost. We've done a lot of that. It has involved manufacturing from India. It's -- gives a certain touch on the manpower count as well. We've done those. And I think where India has an entity, it is well positioned to ride out the storm. But I think, obviously, there are pressures in the market going forward. But I think -- as the #5 generic entity there, I think it's in a pretty solid position to be able to tackle those. From our perspective, obviously, I think the U.S. generics, executing the story on complex generics, executing on specialty India, that shifts the beginner narrative, especially from a growth perspective.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [49]

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Understood. What I'm trying to understand, I mean, it -- would it remain your third important market for you in the next few years? Or you would, at some point, want to concentrate more on U.S. and India?

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [50]

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I think the focus remains on U.S. and India. I think Japan has always been running on its own. It's been supported by India, of course, but I think the focus remains on U.S. and India. We will see, we'll see what happens long term.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [51]

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Got it. And last question on the biosimilar portfolio, if there's any update on the Enbrel?

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [52]

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So I think it's going strong. And we had talked last time about a Q4 approval for Europe. I think we're still broadly on track with that. We talked about 2 clinical sites that they wanted to inspect. I think they're inspecting one of the 2, the other one is still to be done. But we're probably on track with that. So I think end of Q4 approval and likely Q1 launch is what they're expecting for Europe. We already launched in Japan and through our partner, Nichi-Iko, we basically plan to launch later this month.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [53]

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And for U.S.?

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [54]

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So I think for U.S., the development is underway. As you know, the patent was up. And I think, obviously -- unless the appeal overturns it, it's out for a few years. I think (inaudible) in the U.S. will be a near more near-term opportunity. We are on track for filing next year, and I think that'll be a very nice opportunity for us.

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Operator [55]

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The next question is from the line of Nitin Agarwal from IDFC Securities.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [56]

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Vinita, on the U.S., when you look through this year, barring in the scale-up in the Levo that's going to come through, what will be the other drivers for the business in the U.S. this year from this base onwards?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [57]

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So the base business itself is pretty strong at this point and Levo, of course, will be the largest revenue contributor from a ramp-up standpoint. And the injectable products that we had hoped to launch at least one by now but delayed by a month, but in the next quarter, we should really have 4 products in the market. So we think that we probably will have another 5 to 7 potential launches before the end of the fiscal year. But the major of growth drivers still will be Levo.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [58]

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We also talked about a pretty solid base business, right? So there is this $170 million, $180 million (inaudible) that you're building on. So I think it's a nice platform to build on from here.

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [59]

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There is also an opportunity of relaunching some of the products from our U.S. site where there's some interesting opportunities. We'll obviously share more with time but there a couple of significant relaunch opportunities, given competitive disruption issues in supply. Those have become interesting for us. And the injectable launches are eventually sizable. They're strategic in the context of this fiscal but as they ramp up in the next fiscal will become, obviously, financially relevant as well, as Vinita was saying. But the rest of the business is holding up fairly well. We have seen volume gains. And as Levo ramps up, obviously, that's an exciting focus for us, for balance of the year as we get into then approval and launches of generic ProAir and so on. So that's kind of the path for the next 6 to 12 months.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [60]

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If I just extend that a little further, in -- and for FY '21, obviously, there is this big ProAir launch, which is lined up along with the probably a lot more scale-up in Levo. What else should we really look forward to in the U.S. for next year?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [61]

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So injectable's like a (inaudible) so Levo for certain, continue to ramp up share in Levo with the new expanded capacity in place at the end of the fiscal year. And ProAir plus these injectables portfolio, we should have the full year impact, full effect. We've been working hard on trying to accelerate growth on SOLOSEC, also optimize our gross to net. So we expect that to be a material contributor on the specialty front next year. Those will be the major products in the U.S. And then ex U.S., I mean, we should have (inaudible) set of course, in Europe. We should have Fostair, which would be a material product in Europe we hope to launch next year.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [62]

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And Vinita, on Enbrel, how -- what is the competitive situation right now. The fact that's it's going to be almost 1.5 years behind earlier launches, how do you see that playing out for ourselves?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [63]

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As of now, we don't think that we will be the third entrant. And we don't see anyone else that is far along, that can beat us. So we still think that we should be one of three. So a pretty good position and a good opportunity.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [64]

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And then just a couple of housekeeping questions. What is -- the income is pretty large this quarter, is it largely Forex gains or there's something else to it?

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Unidentified Company Representative, [65]

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So other income has got FX gain as well as treasury income.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [66]

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Okay. And lastly, on the -- we've talked a whole lot about the cost optimization efforts in the previous quarter. How much of it has begin to reflect into the numbers just yet?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [67]

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Some of it. I mean we had mentioned that we will start seeing the impact to a small degree this year, a larger degree next year. First half of the year, we've had some impact, we'll have a larger impact in the second half of the year. So it's a material impact next fiscal year.

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Operator [68]

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The next question is from the line of Damayanti Kerai from HSBC.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [69]

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I would like to understand the U.S. better. So you mentioned in your opening remarks that the price erosion in the U.S. base portfolio is now down to single-digit, and we have done some key launches during the quarter. But if I look at quarter-on-quarter performance for the U.S., I'm seeing around 15%, 16% decline. So what has led to that?

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [70]

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So we had a limited exclusivity with Ranolazine. So this is really the first quarter without any of that factored in, and that's really the biggest driver. And as you go back to the third quarter last year, that was on an order of magnitude would reflect base at that point in time in Ranolazine. Ranolazine came along, and we did close to $100 million on that product. So that's how we -- that's -- some of that was obviously spread over 3 quarters. So this really reflects the first quarter without the Ranolazine and that explains the decline.

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [71]

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Yes. Actually ex-Ranolazine, our base business grew quarter-on-quarter.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [72]

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Okay. So the entire difference is due to the Ranolazine effect, right?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [73]

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That's right.

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Unidentified Company Representative, [74]

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Yes.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [75]

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Okay. Also, if you can update throughout the key inhalers, which you're working on. So as -- we are targeting for first half of next year. So what about other opportunities, the key ones?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [76]

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So as mentioned, Fostair, which is a material opportunity for Europe, we expect to launch next fiscal year -- second half of next fiscal year. That's already filed. We have multiple products in development, Symbicort, Dulera, Flovent very rich pipeline on the innovation front.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [77]

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Okay. The Symbicort opportunity is coming only in FY '22, right, which we earlier indicated?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [78]

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I think. So we talked about Tiotropium, Spiriva in 2022. We are first-to-file on Spiriva and hope to be in the market in 2022. Symbicort, I don't recall off the top of my head the launch date, but I think it's after that, after Spiriva.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [79]

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Okay. And finally, how should we look at the tax rate for this year and next 2 years?

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Unidentified Company Representative, [80]

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I would reply this in 2 parts. One, first, let's talk about the effective tax rate. So effective tax rate for Lupin is in the range of 25% to 30%. And -- the budget tax, what we paid in India, which is at the rate of 26%. The tax rate we've put on the spreadsheet, that looks high because of the lower denominator because there will be losses in some of the subsidiaries, and also because the reversal of the [DTX]. So -- and that's why the tax rate looks high on the paper. For the purpose of your calculation, maybe this year, the [denominator] is low because of the onetime write-off trend, which will refect our guidances. So -- but -- first of all, the calculation can take the tax about 45% for the full year.

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [81]

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In the years to come, we have multiple initiatives underway to bring it down to 40% and then into the 30s.

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Unidentified Company Representative, [82]

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Yes. This year it was 45%.

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Damayanti Kerai, HSBC, Research Division - Analyst, Healthcare and Hospitals [83]

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45%, okay.

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Operator [84]

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The next question is from the line of Shyam Srinivasan from Goldman Sachs.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [85]

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Just one on -- the first one is on the regulatory environment, right? We have seen -- we could count about 15 warning letters for, like, India-based manufacturing plants, maybe inhalation -- maybe just stepping back, not necessarily only Lupin, but what is happening? Why is this spike in terms of warning letters? I'm not using the word, targeted to India, but I'm just saying, is there something that's changing, say, after the [Harten] issue last year and a series of popular press writing about this whole issue? Can you just walk us through what is happening there from your interactions with the FDA, has something changed? Question one.

And how are we, as management, responding to kind of give comfort back to the FDA?

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Unidentified Company Representative, [86]

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So I think one part was tha [Harten] issue that led to certain warning letters, obviously, that is isolated to some companies that have had concerns around that area. I think investigation, in general, has been a broader industry issue. And I would -- I wouldn't say it's only an India issue, I would say it's broader than that. But it's certainly an India issue as well. And I think that's -- a lot of the warning letters, including Lupin's, have reflected on -- has preceded that.

And I think from the FDA's perspective, I think, obviously, their first priority is to ensure that what comes to the U.S. is safe, effective. And I think that is really their approach. India supplies outflows to 45% of what gets consumed in the U.S. in in terms of generics. We will have the largest share of approvals. We'll also have the largest share of issues. So I think certainly, I think there's a little bit of (inaudible) is that. I think it's exacerbated by what you're seeing right now on the areas like investigations, patients like this Harten issue. But I think that at the broader level, I think, India is very significant player. Because obviously you'll have issues coming out of that as well. From our perspective, I think it is that broader level of assurance that FDA would expect. I think that's exactly what we talked a little while ago about working at that deeper level to ensure that it's not this investigation but everything else that happened as well. How is that in line? How is that compliant? So that year in, year out, you are able to assure compliance. And then I think that's really our goal. See it's -- I think from our perspective, what we started as a program right now will be a multiyear project. But I think it'll really be an ongoing thing, an ongoing project at one level for us to continue over the years to ensure sustainability and quality and compliance.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [87]

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It's part of -- it's also getting talent from outside, like, I think you made an announcement on the quality side as well. So are people also part of the solution, new people coming in to bring a quality perspective?

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Unidentified Company Representative, [88]

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I think we -- I think if I was to flash 2 years back, our reliance will be much more on consultants to help shore up. And I think we felt that we needed to add to capability. I think we've pretty much got the best capability that there exists in India. And I think that's why we looked globally to make sure that we get the right kind of person on board to lead our quality and compliance team. I'm very happy with bringing Joni on board. I think he brings the right kind of expertise. Obviously, he's going to spend a lot of time in India because that's where the lion's share of our plant and manufacturing is. So I think people is the -- we have to send them people, but I think it's also about increasing bandwidth. So -- and I think that's really one of the things that we're focused on. But then some of the areas we're focused on like training, (inaudible) competencies, getting people ready for inspections, that is part of what is required to be done as well.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [89]

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Got it. And my second question just is on the press speculation around the Japanese divestment of the entire business. Can you just comment formally that it's part of a business, now it's 11% of sales before even the CritiCare got divested. So can you just -- is there a capital allocation or a change in the way we think about some of the individual geographies that are -- looking today?

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [90]

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We can't comment on speculation. I think that's exactly what we wrote to the stock exchange as well. In all of our businesses, we won't look at options, alliances, what you may have. But I think there's nothing concrete to report at this point of time.

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [91]

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And I'd say, we look at every geography from a self-sustenance standpoint, and we get majority of the geographies -- majority of the countries to be self-sustaining and work towards getting to a company's average level of EBITDA.

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Operator [92]

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The next question is from the line of Kunal Dhamesha from SBI Capital.

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [93]

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I have two questions. Firstly, how you give the new [level side] capacity as compared to currently ample capacity?

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Unidentified Company Representative, [94]

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We have not commented on this in the past, but I think what we've said is it's a significant expansion from our current with the new plant. So actually we end up with a multiple of the times of capacity that we currently have.

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [95]

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Okay. Okay. Okay. And my second question was on recent change in the Medicaid regulation, which kind of impacts some of the authorized spending. So do you believe that the recent change in regulations will impact the ProAir authorized spending strategy or albuterol authorized spending strategy as a whole?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [96]

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Change in regulation from what perspective?

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [97]

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Medicaid rebate calculations in...

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [98]

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Yes, we don't expect it to have any material impact.

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Operator [99]

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The next question is from the line of Saion Mukherjee from Nomura.

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Saion Mukherjee, Nomura Securities Co. Ltd., Research Division - Head of India Equity Research [100]

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Nilesh one question on the cost. You have been talking about cost control. Now if I look at this quarter, most of the cost items have grown ahead of their revenues. R&D is up 15%, employee cost is up 17% (inaudible) where we are because you mentioned it will come next year but we haven't seen any signs of cost control (inaudible) between the numbers.

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [101]

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You're right. I don't think you see it at a very quantifiable level right now. R&D, a little bit of lumpiness. Typically we would expect Q2 to go up. We're trying hard (inaudible) others to see if Q3 can be back to the Q1 kind of levels (inaudible) Q2 kind of level, but I think we're pushing hard on some of the inhalation projects, for example. And obviously there is an investment related to that. We'll talk about keeping that within 10% of spend, we'll keep that. That in itself is not part of the purview of cost control. I think we've actually said that in the past because that's a group driver, that's something that we will invest in.

On the rest, like Vinita said, it started accruing, it's still small, it'll be more material in the second half. It'll be really material in the next year. And I think in the next fiscal, you'll see actual -- we actually have improvement in some of these lines, but I guess the reclassification of some expenses and stuff. So employee cost ended up guiding something which should have gone into another line. There's a little bit of ForEx, which has cost us some of these lines as well. So I think it's getting -- it's small enough to get muddied right. But they think in the next fiscal, it will be meaningful enough.

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [102]

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The employee cost also had some of the incentive, increments for the past fiscal year that came into this quarter.

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Unidentified Company Representative, [103]

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Vinita, (inaudible) delivered from July.

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Unidentified Company Representative, [104]

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And the reclass. So I think the normalized number that you look at, Saion, is around [825]. So the [850] because that contains (inaudible) to the extent of [INR 125 crores.]

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Saion Mukherjee, Nomura Securities Co. Ltd., Research Division - Head of India Equity Research [105]

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Okay. And just some R&D. I mean the point is that there are -- I know you're doing (inaudible) level biosimilars, et cetera, which could be quite lumpy. But there are a lot of uncertainties that we deal with in each of these programs. But just from a -- and you know how the market is shape up many years down the line. So how are you thinking about R&D? I mean is there a way to reduce risk? Or how are you thinking? I mean if I have to think like slightly longer term, do you think this number will go up? Go down? What is your assessment once you're done with these projects?

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [106]

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Saion, I think we've -- we actually took a really good, long hard look at R&D about 2 years ago. And I think based on that we recast some of that, in fact we cut down some of the areas like Drug Discovery at that point of time. We optimized spend on even biosimilars at that point of time. We optimized costs through partnering with financial, strategic -- financial partners for some of it as well. So I think we're well optimized in terms of the areas to spend. There is this lumpiness on the innovation side, but then obviously that's one of the biggest spend that we're doing right now. And I think we have a pretty large pipeline, we need to talk about it. I think there's a pretty large pipeline of inhalation right now. And I think as we get success, we'll likely to only push even harder to get those products done. I think we've talked always of keeping it under 10%. Obviously, once the sales move very meaningfully, I think if you span out 5 years later then obviously it comes down in that. But I think in the next couple of years, we basically would see it (inaudible) percent. Even in an absolute term, I think we talked about the fact that this will be more or less in line with last year. I think we're still on track with that. Next year will be a slight increase, again, we talked about that, primarily driven by spending areas like specialty. So I think we're pretty comfortable with where we're holding the R&D line.

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [107]

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We have a pretty balanced pipeline. It's not really too much in one direction or the other. And we have a very balanced pipeline of inhalation products or complex injectables, oral, solids. There again we see the opportunity of being exclusive (inaudible) exclusive and biosimilars.

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Saion Mukherjee, Nomura Securities Co. Ltd., Research Division - Head of India Equity Research [108]

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Okay. And you mentioned about launches this year in the U.S. Looking at next year, assuming there is delay in resolution, how should we think about launches for next year? And any meaningful launch that you can call out and highlight?

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Unidentified Company Representative, [109]

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Yes. So Saion, we are looking at about 15 to 20 launches next year in the fiscal. I won't be able to highlight or shine the light on any specific launch, but there are a few strategic and sizable launches next year as well. And, of course, we continue with our filing rate as we've shared earlier of 25 to 30 a year. So yes. But this is normalizing for those plans as well, the outside of those 2 plans that you mentioned.

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Saion Mukherjee, Nomura Securities Co. Ltd., Research Division - Head of India Equity Research [110]

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Okay. And if you have -- with your permission, just one last one on SOLOSEC. Vinita, I mean, we are running $20 million or so run rate annualized and we talked about $150 million, $200 million. Now typically we see that in 3, 4 years, things start to peak out. So are you still confident of achieving that or you want to sick with guidance? And how exactly you are going to get the gross to net be the key driver or is there something else we can look forward to?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [111]

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So Saion, we're still targeting the $150 million, 15% share of the market. And as we look at our current performance 18 months from launch, I mean obviously we are not at the level that we hope to be. At the same time, we've seen in the last couple of years, companies have launched products and got to the right trajectory in year 3, 4. Given the fact that we have 7-plus years of exclusivity on this product, we have a good runway and are completely committed in building the product to that 15% share that we have targeted.

In terms of how we're going to get there. It's a combination of tactics right from leadership. I mean I just mentioned that we brought on board a new leader to head that business, someone with very strong experience in women's health and managing Bayer's women's health. Very successfully turning around products at -- in women's health. So that was obviously very carefully chosen in terms of talent to meet our current requirement.

And we just saw as we looked at how we have done over the first 1.5 years. Looked at, in the last couple of months, at the opportunity to optimize and improve and it was tremendous opportunity right from the standpoint of converting the high-volume writers, we found that our share of high-volume writers does not -- where it should be. Our share of call to high-volume reached the frequency at the high-volume writers is not where it should be. There is scope to improve that.

Gross to net, I mean with the coupon that we brought into play end of last year in November, we saw a big part of the business go to cash, which is problematic for us. So we are rebalancing that. We changed our coupon to -- from $25 to $45 in the last month. And have worked hard to try to ensure that we don't lose any volume of scripts while we make the change. And so far, it looks fairly decent. And we are looking at other means and ways. Right now we -- the calls on targets and the prescriptions that we want to convert from is really a small percentage of the patients that are diagnosed with -- have been near 20 million patients that are -- women that are affected but only 4 million that are treated. So we'd like to really be able to, through a direct to consumer efforts, be able to get to the broader population, to be able to get more women to the physicians, and make sure that we get the right share for high-volume writers, make sure that we get the right adjudication of strong managed care coverage that we have to be able to optimize the growth demand. So those are some of the areas that we are working on.

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [112]

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So there's enough volume into relaunch but I think there's a lot of renewed energy in the -- I think we're far from done with SOLOSEC.

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [113]

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Absolutely. There is a foundation for us on our specialty business for women's health business, it's very focused on ensuring that it's for the foundation and building from there.

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Operator [114]

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The next question is from the line [Surya] from PhillipCapital.

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Unidentified Analyst, [115]

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You just (inaudible) from the kind of remediation expenses. How should one really look at from the current level? Though we have already been in the process of correcting and all that. So from here, how should one really look at? Any sense on that trend? So -- because it this -- this could be a kind of relevant cost element also.

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [116]

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So I didn't comment on material. Year-on-year, there's probably a decline on that number. I think we probably spent more on it last year than we would this year. And I think the intent would be more and more to have our own strength and capability rather than leaning on the outside for remedy.

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Unidentified Analyst, [117]

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Okay. So that means currently whatever that we are doing is largely about the consultation expense, but it's not any major kind of changes to the system or something like that. Is that correct, sir?

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [118]

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So I talked about the fundamental revamp, right? So I -- what I'm saying but -- that revamp is internally driven, it is supported by the outside but it's internally driven. But I'm talking about people, processes, training. All of those are the soft things. And so there aren't big costs associated with that but there is a lot of effort associated. That's what we're focusing on at this point.

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [119]

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There's no capital investment as much.

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Unidentified Analyst, [120]

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Okay. And secondly, on the U.S. business front. So over its longer period of time, so how do you see -- so do you want to have -- that anchored product would be driving the growth the way it has been for a couple of years. So similarly going -- and also, do you think that couple of -- or a few anchored products that would be driving the overall U.S. generic business or U.S. business?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [121]

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Not really. I mean from the generic side of the business, we have a pretty strong portfolio, our base business is very well diversified. And right now, very stable as we look at it. And as we look at our pipeline, we have a very strong pipeline. I mean the investments we have made in pipeline in the last many years have been to ensure that we have a strong, rich, diversified pipeline of products into the future. So I mean we call and -- call out and talk about material product but any given year we're looking at 20-plus launches.

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Unidentified Company Representative, [122]

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We have to keep investing in the base business as well. U.S. is the largest market in the world from a volume standpoint. And as Vinita said earlier, our (inaudible) companies to be at the 40%, 45% shares, that requires to be relevant given the tonnage and the market and -- which requires systematic investments in pipeline, which we've been doing over the last many years. So investing in the base business, obviously the complex generics capability which we have created and resulted -- that resulted in many more filings across areas that Vinita mentioned over in inhalation, long-acting injectables, biosimilars and so forth. And that will obviously add to the relevance of the base business and together will create a business which would be really exciting for us.

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Unidentified Analyst, [123]

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Okay. And just one last question on the WTO related export subsidies. What is currently the (inaudible). So what is the kind of export subsidy benefit that we should be currently getting? And how important or how critical is this if the verdict comes against us?

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Unidentified Company Representative, [124]

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So I think we -- so clearly there are like 4 businesses (inaudible) as far the markets are there in India comes from. We do get export benefits in terms of (inaudible) FDI. But we have lost a case in WTO. But I think Indian government will also come out with alternative remedies. So we have already appealed, which is public news coming from all -- entire industry. I think India is going to appeal this in the court. So we should wait and watch and not come to any conclusions on how it will play out.

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Operator [125]

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The next question is from the line of Sameer Baisiwala from Morgan Stanley.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [126]

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Alok, when you talk about some meaningful launches in the U.S., you mentioned about 4 or 5 injectables and then a couple of relaunches from U.S. For these, what's a typical sales industry opportunity that you see a $20 million to $40 million more or less for a product?

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Alok Sonig, Lupin Limited - CEO of US Generics & Global Head of Generics R&D & Biosimilars [127]

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Yes, so per product maybe not quite that. It will be -- Sameer, it'll be, like I said, these are sizable launches, so these are relevant to the other card launches. So it'll -- I won't guide you to a number on a per-product basis, because as I said, some have been just competitively disruptive kind of opportunities that are presented -- so we are still working on through those. And some are going to be smaller than the number you quoted but definitely very interesting as you put them all together.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [128]

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Okay. Great. And for Levo, given the large volume product that it is and which means per unit lower pricing. So what's the kind of a gross margin that you'll be making on Levo?

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Alok Sonig, Lupin Limited - CEO of US Generics & Global Head of Generics R&D & Biosimilars [129]

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Yes, so it's a healthy margin, and obviously we won't give you a number but it is, like I said, sticky business margin, yes.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [130]

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Is it better than the company average? It's 65% plus? Or...

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Alok Sonig, Lupin Limited - CEO of US Generics & Global Head of Generics R&D & Biosimilars [131]

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Yes.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [132]

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Okay. Great. And Vinita, can you share what's the size of the Fostair product opportunity in Europe?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [133]

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So I think the brands have EUR 700 million, Sameer.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [134]

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And the competitive dynamics?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [135]

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So we believe at this point, we are the first company to file the product. We are in litigation already and we think there maybe 1 or 2 other companies that are working on it, but we believe that we have a head start.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [136]

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Okay. Vinita, and one final question. If I see your margins and I think the right way to look at it is by excluding the in-license income that you have made INR 40 crore plus. Than margins that we're seeing are 30% at the retail level, it's much lower, and to my mind, it's actually lower than any of the last 10 quarters. So is this the new margins and the new rebuild over or what's outsourced over here?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [137]

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Actually gross margins, Sameer, ex the BI license, is in the...

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Unidentified Company Representative, [138]

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Basically EBITDA.

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [139]

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But it's not gross margin, right?

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Unidentified Company Representative, [140]

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right?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [141]

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I mean 63% without it, and on average, a margin has been at the 63% to -- 52% to 54% level. So it's not -- it's obviously 1 percentage point down -- below 64%, but it's still at 63% level.

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [142]

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And in the broader sense, we did talk about -- we were very clear about the fact that Q2 will not be as good as Q1 and then Q3 will be built from there. And I think that's exactly where we are going. So all of it keeps triangulating back to that 18%, 20% kind of EBITDA margin that we should be able to do with the current kind of business that we have. Obviously as U.S. stuff starts rolling out, we can improve on it. But I think 18%, 20% we still feel good about for the rest of the year as well.

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Operator [143]

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The next question is from the line of Arjuma Begum from Course 5.

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Arjuma Begum, [144]

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One on Brovana.

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Unidentified Company Representative, [145]

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We can't hear you. Can you speak up a little bit, please?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [146]

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We can hear you now.

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Arjuma Begum, [147]

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Can you hear me now?

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Unidentified Company Representative, [148]

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Yes, please.

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Arjuma Begum, [149]

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Yes. Question on Brovana. When can we expect a launch in the market?

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Unidentified Company Representative, [150]

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So Brovana, we obviously filed and we will look for an approval between the first 2 cycles with the agencies. So we're looking at potentially mid-fiscal -- end of next fiscal launch.

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Operator [151]

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The next question is from the line of (inaudible) from Axis Capital.

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Unidentified Analyst, [152]

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I have 2 questions. The first one is EBITDA margin. So this quarter if you leave out the valid income you have the operating margin for 20.9%. Now you've obviously did to its (inaudible) margin of less than 20%. From here on, if keep the recovery in the business, it's going to be probably gradual given gradual ramp up in the U.S. business and the headwinds Japanese Etanercept will continue. So what exactly is the road map from reaching from current trends from 14% to 15% next quarter and next to next quarter because you said that's not something that we can do in second half. In absence of any large product in the U.S. that getting approval for?

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Rajiv Pillai, Lupin Limited - Head of Business Finance [153]

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So (inaudible) this is Rajiv here. The current year's normalized EBITDA, I think we can talk about how you come to that margin percentage. But today we are trending closer to 17%. And looking at the Levo ramp up, et cetera we believe through better margin mix we should be able to deliver better. So we can talk about this as to how we arrived at it, separately.

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [154]

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The Levo ramp up, business ramp up in general especially in the U.S. I think all of those will help. I think we're carrying the full cost also without the returns as that picks up as well. All of those go to expand. And I don't think it's spanned a very long horizon to speak to that 18%, 20%.

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Unidentified Company Representative, [155]

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Higher R&D expenses.

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [156]

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And the R&D expenses at this point as well will normalize a little bit.

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Unidentified Analyst, [157]

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Secondly, Rajiv, you said on the export incentive part that if you could give up because export incentive is INR 250 crores in last year's numbers, so almost 9% of EBITDA. And that they directly flow through the EBITDA. So can you give us [NEIS] export benefit, which you claimed last year? Substantial amount of intake that is -- it didn't continue or something because it might be potential to most pharma companies, not just you.

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Rajiv Pillai, Lupin Limited - Head of Business Finance [158]

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Correct. So I can share that with you off-line, on that number.

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [159]

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Can we take the last 2 questions, please?

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Operator [160]

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Sure. We'll be able to take the last 2 questions. We take -- the next question from the line of Nitin Agarwal from IDFC Securities.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [161]

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Nilesh, on the U.S. side, weren't -- the compliance (inaudible) the site currently in terms of when do we expect to be complaint again?

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [162]

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I think (inaudible) is one of the 2 sites that we're hoping to put up in the first calendar quarter for reinspection. We feel pretty good about the programs that the site has made, I think there's a couple of months of good work that we need to put in before I think it's ready for reinspection.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [163]

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I think earlier you alluded to some interesting opportunities, once the site becomes operational that's where you continue to on -- that where -- in terms of maybe recurring some of the products (inaudible)

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [164]

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No, we're talking about, existing...

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Unidentified Company Representative, [165]

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We actually had approval from that site where we have opportunities now so we are ramping. Also, that's tied to the compliance status.

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [166]

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Nevertheless they want to clear the compliance status...

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [167]

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Okay. And lastly on -- Vinita, on the brand in the U.S. barring SOLOSEC, I mean barring SOLOSEC rather, how are you look at this business on a broader basis? On a -- but it's 2-, 3-year basis.

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [168]

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So we intend to bring in other products into the portfolio. I mean, right now we have Antara as another second brand. I mean Methergine and Suprax are our generic sites. But we don't detail Antara so that's really going to -- it's going to go generic in the next couple of years as well. So the whole focus is on building the -- some portfolio, looking at the opportunities that we can bring sooner rather later to be able to grow the business and offset for the commercial expenditure.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [169]

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And if I can ask the last one. On the emerging market business, I mean as a strategy, where is the emerging market piece across multiple countries that they fit it? And which of these markets as a business are we more excited about?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [170]

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South Africa is substantial for us. Fourth largest part of our business. Bodes very nicely. And it's pretty self-sustaining and strong EBITDA as well. Philippines is a very good size as well and doing pretty well. I mean we recently got a new management and the business has turned around, particularly in this quarter, significant double-digit growth. Mexico, Brazil. Brazil in the first half of the year has actually recovered from all the challenges of last year at 30% plus growth. And Mexico, which doesn't have the same kind of growth opportunity and -- or target market that we're present in, but again, but very strong profitability. I think those are the 2 major emerging markets that we are focused on.

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Operator [171]

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We'll take the last question from the line of Rahul Sharma from KARVY Stock Broking.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [172]

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Yes just wanted to know what would be the scale of Kyowa CritiCare, which has been divested?

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Unidentified Company Representative, [173]

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Criticare, you want to know the amount of losses or what? Sorry.

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Unidentified Company Representative, [174]

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So it's sales of last year of INR 365 crores, which is about 2% of the total consolidated turnover of the company.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [175]

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Okay. It was a loss-making entity?

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [176]

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It's pretty much flat. And I think we are writing that when it made losses when it's made single-digit kind of profit. Obviously, we were not able to scale up this business in the time when -- and like Rajiv said, they are not strategic to the rest of the Japanese business not core. Certainly that kind of injectables did not render well to the rest of the business, which is why we decided to get out of it.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [177]

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And what about -- So it was sold off -- what is the amount which we received?

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [178]

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So we've not talked about that in the past.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [179]

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Okay. And what is update on the Japanese Etanercept launch?

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [180]

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So we launched in June through our partner, and I think pretty imminently, we should be launching with Mexico as well.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [181]

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Okay. Any market share update or...

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [182]

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We are, I think, very early. So too early to comment on that. I think next year it will start ramping up meaningfully.

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Rahul Sharma, KARVY Stock Broking Limited, Research Division - Analyst [183]

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And what about on the order front for Etanercept?

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Vinita D. Gupta, Lupin Limited - CEO & Executive Director [184]

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So think we are expecting approval end of this fiscal year, first quarter next fiscal year. So hopefully we launch soon after. We think that could be a material opportunity for us.

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Nilesh Deshbandhu Gupta, Lupin Limited - MD & Executive Director [185]

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We think we have a very nice opportunity for us for next year.

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Operator [186]

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Thank you very much. We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

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Rajiv Pillai, Lupin Limited - Head of Business Finance [187]

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Well, thank you for your questions, and I do hope you had meaningful discussions thereafter. Look forward to speaking with you again next quarter and wishing you all the best (inaudible) Thank you.

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Operator [188]

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Thank you very much. On behalf of Lupin Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.