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Edited Transcript of SUNPHARMA.NSE earnings conference call or presentation 7-Nov-19 1:00pm GMT

Q2 2020 Sun Pharmaceutical Industries Ltd Earnings Call

Mumbai Nov 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Sun Pharmaceutical Industries Ltd earnings conference call or presentation Thursday, November 7, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Abhay Gandhi

Sun Pharmaceutical Industries Limited - CEO of North America Business

* C. S. Muralidharan

Sun Pharmaceutical Industries Limited - CFO

* Dilip Shantilal Shanghvi

Sun Pharmaceutical Industries Limited - MD & Executive Director

* Kalyanasundaram Subramanian

Sun Pharmaceutical Industries Limited - CEO of India Business and Emerging Markets & Whole-Time Director

* Kirti Wardhaman Ganorkar

Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team

* Nimish Desai

Sun Pharmaceutical Industries Limited - Head of IR

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Conference Call Participants

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* Anubhav Aggarwal

Crédit Suisse AG, Research Division - Associate

* Charulata Gaidhani

Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst

* Dipan Anil Mehta

Elixir Capital Limited - Chairman of the Board

* Hari Belawat;Techfin Consultants;CEO & Director

* Kunal Dhamesha

SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals

* Nitin Agarwal

IDFC Securities Limited, Research Division - Analyst

* Prakash Agarwal

Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals

* Prashant Nair

Citigroup Inc, Research Division - Associate Director of India Equity Research

* Ranvir Singh

IDBI Capital Markets & Securities Ltd. - Pharma Analyst

* Saion Mukherjee

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

* Sameer Baisiwala

Morgan Stanley, Research Division - Executive Director

* Srihari Chintalapudy;P.C.S. Securities;Analyst

* Surajit Pal

Prabhudas Lilladher Pvt Ltd., Research Division - Assistant VP & Senior Research Analyst

* Surya Narayan Patra

PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst

* Vishal Manchanda

Nirmal Bang Securities Pvt. Ltd., Research Division - Research 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 Sun Pharmaceutical Industries Limited Q2 FY '20 Earnings Conference Call. (Operator Instructions)

I now hand the conference over to Mr. Nimish Desai. Thank you, and over to you, sir.

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Nimish Desai, Sun Pharmaceutical Industries Limited - Head of IR [2]

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Thank you. Good evening, and a warm welcome to our second quarter FY '20 earnings call. I'm Nimish from the Sun Pharma Investor Relations team. We hope you received the Q2 financials and the press release that we had sent out earlier in the day. These are also available on our website.

We have with us Mr. Dilip Shanghvi, Managing Director; Mr. Kal Sundaram, Director of Corporate Development; Mr. Abhay Gandhi, CEO of North America; Mr. C. S. Muralidharan, CFO; and Mr. Kirti Ganorkar, Head of India business.

Today, the team will discuss performance highlights, update on strategies and respond to any questions that you may have. As is usual, for ease of discussion, we will look at consolidated financials. Just as a reminder, this call is being recorded, and a replay will be available for the next few days. All transcripts will also be put up on our website shortly.

The discussion today might include certain forward-looking statements, and this must be viewed in conjunction with the risks that our business faces. (Operator Instructions) I will now hand over the call to Mr. Shanghvi.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [3]

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Welcome, and thank you for joining us for this earnings call after the announcement of financial results for the second quarter of FY '20.

Let me discuss some of the key highlights. Our overall sales for the quarter were at INR 7,949 crores, a growth of 16% over the same quarter last year (inaudible) in recover full year guidance. We continue to focus on cost savings, efficiency improvement to align our generic business with the changing industry dynamics. Simultaneously, we continue to progress on building our global specialty business. In the U.S., we recently launched CEQUA, while ILUMYA continues to gain traction. We have also initiated steps to commercialize both ILUMYA and CEQUA in other markets, either through partnerships or on our own.

For Q2, our global specialty revenues were approximately INR 91 million across all markets, with the specialty R&D accounted for about 24% of the total R&D spend for the quarter.

I will now hand over the call to Mr. Murali for discussion of the Q2 performance.

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [4]

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Thank you, Mr. Shanghvi. Good evening, everyone, and welcome to all of you. Our Q2 financials are already with you. As usual, we will look at key consolidated financials. Q2 sales are at INR 7,949 crores, up by 16% over Q2 last year. Material cost as a percentage of sales was 28.5% higher than Q2 last year, mainly due to higher costs for Taro and overall product and geographical mix.

Staff cost was at 20.4% of sales, lower than Q2 last year, but up 10% in absolute terms, mainly due to annual increments, specialty staff cost increase and addition of Pola Pharma in Japan.

Other expenditure was at 30.9% of sales, higher than Q2 last year, mainly due to the branding and promotional spending for the specialty business, and consolidation of the Pola Pharma on Sun Pharma Distributors Private Limited.

As a result of the above, the EBITDA for Q2 was at INR 1,616 crores, up 12% over Q2 last year, with EBITDA margins at 20.3%. Net profit for the quarter was at INR 1,064 crores, up 12.6% or adjusted net profit of Q2 last year.

The EPS for the quarter was INR 4.43. In terms of the variance versus Q1 FY '20, Q2 sales are at INR 7,949 crores, down by 4% over Q1 FY '20 as a sequential quarter included the contribution from the onetime generic supplies to a customer in the U.S.

Finance cost has come down due to debt repayment. During H1 FY '20, as compared to March 19, Sun, excluding Taro, has paid off debt of INR 2,500 crores. However, considering cash, the net reduction is approximately INR 1,300 crores.

We have seen some improvement in the overall working capital in the first half of this year, and we will continue to focus on further improving it. Now we will discuss the half year performance. For first half, net sales were at INR 16,208 crores, a growth of 16% over first half last year. Material cost as a percentage of the net sales was 29.2%, which was higher than at H1 last year, mainly due to product mix.

The staff cost for the first half was up approximately 9% over first last year, mainly due to annual increments, incentives and addition of Pola Pharma. Other expenses were 13.2% of sales higher than H1 last year, driven by branding and promotion for the specialty business and consolidation of Pola Pharma and Sun Pharma Distributors Private Limited.

As a result of the above, the EBITDA for the first half was at INR 3,496 crores, a growth of 18% over the first half last year with resulting EBITDA margin of 21.6%. Net profit for H1 FY '20 was at INR 2,452 crores, with resulting net profit margin of 15.1%. The reported net profit for H1 last year was after providing an amount of INR 1,214 crores for the estimated settlement amount payable for the Modafinil antitrust litigation in the U.S.

Excluding this, the net profit for H1 this year has grown by 22.5% year-on-year. Let me now briefly discuss Taro's performance. Taro posted Q2 FY '20 sales of USD 161 million, up by 1% over Q2 last year. For the first half, sales were USD 322 million, up 2.7% over first half last year.

Taro's net profit for Q2 was USD 56 million, down by 10% over Q2 last year. Net profit for H1 FY '20 was USD 122 million, down by 6% over first half last year.

I will now hand over to Mr. Kirti Ganorkar, who will share the performance of our India business.

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [5]

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Thank you, Mr. Murali. Let me take you through the performance of our India business. For Q2, the sales of branded formulation in India were INR 2,515 crores, a growth of 35% over Q2 last year and accounting for approximately 32% of total sales. You would recall that we had undertaken a voluntary inventory correction in Q2 last year, which has resulted in a lower base. Hereby adjusted, for the inventory correction of Q2 last year, and on a comparable basis, our underlying sales growth for quarter is trending at 12% over Q2 last year.

Sun Pharma is the largest pharmaceutical company in India and holds approximately 8.2% market share in over INR 136,000 crores pharmaceutical market as per September 2019 AIOCD-AWACS reports. As per the latest SMSRC report, Sun ranked #1 based on a share of prescriptions with 11 classes of doctors. For Q2, 12 new products were launched in the Indian markets. Going forward, our key focus areas are as follows: Retaining high brand equity with the doctors; using in-licensing as a route to launch latest generation patented products; undertaking more EBITDA's best scientific promotion of our products; strengthening and broad-basing the prescription base; retain our leading prescription ranking in the chronic segment.

Now I will hand over to Abhay.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [6]

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Thank you, Kirti. I will briefly discuss the performance highlights of our U.S. businesses. For Q2, our overall sales in the U.S. were flat over Q2 last year at USD 339 million, accounting for approximately 30% of overall sales.

For the overall generics business, we have not seen any broad-based improvement, and we expect the market to remain competitive. Let me now update you on developments in our U.S. specialty business.

As indicated by Mr. Shanghvi, the Global Specialty sales are flat compared to June '19 quarter. While ILUMYA sales for the quarter have increased as compared to the June '19 quarter, seasonality in Levulan and ABSORICA has led to the flat growth.

We continue to add patients and increase the doctor coverage for ILUMYA. Prescriptions for ILUMYA continue to gain gradual traction. The long-term follow-up data for ILUMYA, which was recently presented at the EADV Congress, demonstrates sustained response for patients over a 4-year period, with very good safety profile.

We also continue to invest in promoting ILUMYA, including the direct-to-consumer promotion campaign, and we remain optimistic on the prospects of ILUMYA.

We have simply commercialized CEQUA for dry eye disease in the U.S. This is an important launch for us and adds 1 more product to our on-market specialty portfolio. Although it's been just a few days into the month of October when we had launched CEQUA, we are enthused and happy with the response that we are seeing from the doctors.

ODOMZO continues to gradually gain market share as we put in more efforts towards increasing prescriptions. Overall, we expect traction in our U.S. specialty revenues going forward.

I will now hand over the call to Mr. Shanghvi.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [7]

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Thanks, Abhay. I will briefly discuss the performance highlights of our other businesses as well as give you an update on our R&D initiatives.

Let me now discuss our performance in emerging markets. Our sales in emerging markets were at USD 201 million for Q2, accounting for 18% of total sales. Key markets, which have done well, were Brazil, emerging Asia, India subcontinent and Sub-Saharan Africa.

Formulation sales in Rest of World markets, excluding U.S. and emerging markets, were USD 161 million in Q2, a growth of 49% over last year.

ROW markets accounted for approximately 14% of Q2 revenues. This growth was driven by both organic initiatives as well as the consolidation of the Pola Pharma acquisition in Japan.

We continue to focus on developing and utilizing APIs for captive consumption and for benefits of our vertical integration.

For Q2, the external sales for our API business were at INR 468 crores, up by 10% over Q2 last year. Consolidated R&D investment for Q2 were INR 488 crores, accounting for 6.1% of sales. Our current generic pipeline for the U.S. market includes 103 ANDAs and 3 NDAs, awaiting approval with the U.S. FDA.

We expect higher R&D spending in the coming quarters for the specialty business. This R&D spending enables development of future product pipeline, including specialty and differentiated products.

We also continue to critically evaluate generic R&D spend, given the competitive nature of the U.S. market.

With this, I would like to leave the floor open for questions. Thank you.

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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 Anubhav Aggarwal from Credit Suisse.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [2]

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Dilip, can you just give some idea about ILUMYA in terms of, let's say, a couple of quarters back, you mentioned that the prescriber base was about 1,200 doctors. How is that number doing right now? Some idea will be useful here.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [3]

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Abhay, would you like to respond?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [4]

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Yes, sure. Anubhav, last year -- last quarter onwards, we are giving you the global sales numbers, so we have not giving doctor-wise numbers. But clearly, significantly more than the 1,200 number that you remember from one of the earlier calls. We feel we are doing quite reasonably okay with ILUMYA, and we will continue to gain traction as demands go along.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [5]

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Sure. But my understanding was ILUMYA is just less than 5% of your Global Specialty sales or roughly of that order. So how justified is giving 100% number and not talking anything about 5% number?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [6]

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Well, I think it's significantly different than what you estimate. Without specifically responding to the number. But if you presume that it is only 5%, then that's not correct.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [7]

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Sure. Dilip, one more question on ILUMYA. How important is to have an autoinjector form for ILUMYA? And are we working towards it?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [8]

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Can I take that question?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [9]

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Yes, yes, please.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [10]

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From a U.S. context, it is something -- Anubhav, we would not like to do, because as we have said in multiple calls, we are in the medical benefit side of the business. And having that, I think, is one of the reasons why having our access, it doesn't put us at any disadvantage. The moment you have an autoinjector will be changing the rules of the game completely, and that may actually put us at a disadvantage.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [11]

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Can you just a little -- elaborate on this? Sorry, I did not understand this point very well. So how does it become disadvantaged once you have autoinjector?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [12]

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Because the moment you have an autoinjector, you are basically seeing that the patient can self-inject in their home environment. So then it does not become a medical benefit product, where essentially, the doctor has to inject the product into the patient in a clinic or an outpatient kind of an environment.

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Operator [13]

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The next question is from the line of Surya Patra from PhillipCapital.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [14]

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Sir, just wanted to have a sense on your China strategy. Like, see, is it too -- means the kind of full tie-ups that you have done and the kind of product development activities that you're talking about, is it to -- like leveraging the product development activities that you are anyway doing for a larger market? Or it is new R&D effort will be done for the -- building the pipeline for China? And in the -- in, let's say, 3-year time frame, how big this China portfolio could be for us?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [15]

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Kal, maybe you can respond?

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Kalyanasundaram Subramanian, Sun Pharmaceutical Industries Limited - CEO of India Business and Emerging Markets & Whole-Time Director [16]

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Dilip, the line is not clear. Can you -- maybe you can answer? It's muffled.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [17]

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Okay. So I think our focus is on developing a relationship with a few important players in the market, registering our specialty product as well as some of the branded products, where we don't expect too much competition. I mean, sorry, generic products for which we don't expect too much competition. As this business builds and as we continue to get approval for this product, we expect China, even Japan, to become an increasingly important part of our future business.

Most of the products that we are currently developing are for China as well as for Japan or mostly products that we are developing for the other markets. But at a later point of time, looking at the size and the importance of both the markets for us, we don't rule out developing something specific for these markets.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [18]

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On the second point, sir, you in the initial remarks, you have mentioned about the higher R&D spend for the specialty segment going ahead. So can you just elaborate something on that, okay? What is the kind of thought process here? And are you talking even the China/Japan-related developments also under it?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [19]

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Yes, it may be Japan-related or China-related clinical studies, but also new indications for ILUMYA, additional studies for establishing benefits of CEQUA, our currently marketed products. So I think we -- the idea is to help doctors see how our products can benefit the patients more effectively.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [20]

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And this R&D budget will be, say, something different than the trend currently, sir? Or anything on that front you can clarify?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [21]

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So our current guidance, I think, is around 8%, 9%. We, for first half, I think, it's much lower. I'm expecting some pickup in the second half. Whether we'll be able to touch the guidance or maybe a little bit lower, essentially because some of the studies that we were planning to be able to start have got delayed, is the reason why you see a lower number.

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Operator [22]

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The next question is from the line of Surajit Pal from Prabhudas Lilladher.

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Surajit Pal, Prabhudas Lilladher Pvt Ltd., Research Division - Assistant VP & Senior Research Analyst [23]

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I have one question regarding of India formulation. The statement which was given Q3 FY '19, is that -- you have adjustment of roughly around 3,150 or INR 330 crores, roughly, if I'm not mistaken. Yes. INR 315 crores to INR 330 crores of adjustment was done in inventory level. And that's where -- that is the amount which was lower in the relationship. So if I add back that, then your actual growth, which is coming, is that roughly around 15% to 16%. And if I can recall the guidance, overall [macro levels], even is that 7% to 9% could be the good growth for Sun's domestic formulation business. So from that perspective, do you think this supernormal growth could impact your H2 sales?

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Nimish Desai, Sun Pharmaceutical Industries Limited - Head of IR [24]

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So Surajit, I think 2 clarifications. First and foremost, we have not given any guidance for our India business. And secondly, the INR 300-odd crore number that you are referring to also is not a number that we had disclosed. In quarter 2 last year, we just said that there was inventory destocking, which impacted growth. So these were not numbers which were disclosed by us. And there is no guidance separately that we have given on the India business.

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Surajit Pal, Prabhudas Lilladher Pvt Ltd., Research Division - Assistant VP & Senior Research Analyst [25]

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My point is that, it's not guidance per se in the strict guidance, but it just told is the 7% to 9% could be a good growth for India business. And beyond that, it will be very good growth kind of scenario. But if I assume that INR 315 crores, the destocking amount of INR 330 crores or INR 315 crores of -- do you think the faster growth would be, whatever has been reported, is much higher and could impact your rate to sales?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [26]

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No, I think whatever -- Yes? Kal?

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Kalyanasundaram Subramanian, Sun Pharmaceutical Industries Limited - CEO of India Business and Emerging Markets & Whole-Time Director [27]

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No, no, Dilip, the line is clear, you please continue.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [28]

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Yes. Maybe Kirti, you can hear, he's asking a question about second half.

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [29]

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So just to reiterate that, as Nimish pointed out, that there was no guidance given for the India business. And we maintain our overall guidance, which is given at a group level for the top line.

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Kalyanasundaram Subramanian, Sun Pharmaceutical Industries Limited - CEO of India Business and Emerging Markets & Whole-Time Director [30]

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This is Kal here. More sort of going back to what you say, some of the statements we have made in the past about India. If you look back, we always have maintained that our growth is sort of in the low double digits, to sort of low teens, et cetera. Through the best of my recollection, we have never given any guidance of a 7% to 9% being our expected growth. So I think what you say, talking for -- we see the 12% that Kirti mentioned for second quarter is maintaining the momentum that we had historically.

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Operator [31]

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The next question is from the line of Prashant Nair from Citi.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [32]

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My first question relates to your U.S. generic sales. So the quarter-on-quarter decline, how much of that would be -- or other is a large part of that related to the onetime business you had? Or has your -- the rest of the core business also declined sequentially?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [33]

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Abhay?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [34]

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The onetime large business that you're talking about actually came in Q4 of last year. So if that is what you are referring to, then in the first 2 quarters of this year, there is no real impact of that business. But we said that -- we've always said that the market is competitive. And...

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [35]

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Abhay, just a moment, there was significant sailing, first quarter of this year also.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [36]

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You -- Okay, okay. You're looking at Q4 and Q1 put together?

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [37]

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Yes. Yes, that's right.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [38]

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Okay. That's correct, that's correct. That being said, yes, then if you're looking at on a quarter-to-quarter basis, that will have a significant impact because that Q4 element, Q1 element of this year, was significant. Yes.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [39]

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Yes. So my question was, is the decline primarily related to that? Or have you seen any further erosion in the regular business as well?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [40]

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No, there is no further erosion, really speaking. But we always said that the market is competitive, and it's a tough environment for all players in the generic business.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [41]

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Fair enough. And one more question. This is more on the other operating income side, there seems to have been a reasonable spike quarter-on-quarter. So is there anything in the second quarter number which is nonrecurring? Or this is just a regular skew that we see?

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [42]

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So this is related to out licensed income for the current quarter of about INR 50 crores plus. And the product is XIMINO, which was out licensed.

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Operator [43]

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The next question is from the line of Ranvir Singh from IDBI Capital.

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Ranvir Singh, IDBI Capital Markets & Securities Ltd. - Pharma Analyst [44]

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Sir, just in your commentary, you mentioned generic business R&D, you're likely to review. So just wanted to understand whether you are going to increase there? Or curtail the revenue?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [45]

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No, I think we -- I said, rationalize. So we will possibly be relooking at how best to compete in marketplace by controlling the cost, both for reducing cost as well as improving productivity.

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Ranvir Singh, IDBI Capital Markets & Securities Ltd. - Pharma Analyst [46]

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So anything on the number of filings we are likely to do in this year? Or next year? On generic side?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [47]

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No, no. There's no impact to that number by mix.

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Ranvir Singh, IDBI Capital Markets & Securities Ltd. - Pharma Analyst [48]

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Okay, okay. And secondly, on Japanese business, just wanted to understand the pricing environment there. So since we have started doing through Pola. So have you seen anything on the pricing side that is -- we have to be concerned about?

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [49]

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I think it's -- for long-listed brands, there would be a decline in pricing, yes. So the Pola portfolio is a mix of branded product and long-listed products, but the majority products are our branded products.

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Ranvir Singh, IDBI Capital Markets & Securities Ltd. - Pharma Analyst [50]

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So yes, so this is in a range of double digit or single digit, how is this?

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [51]

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Very long list of products. I think it is public information, the impact for average industries, they're at 9%.

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Ranvir Singh, IDBI Capital Markets & Securities Ltd. - Pharma Analyst [52]

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Okay. And how is the mix for our own products or long-listed products and other for?

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [53]

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As I said, for Pola business, majority products are branded products for us.

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Operator [54]

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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 [55]

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Sir, on ABSORICA, the product goes off-patent or rather, goes generic by some time second half next year. So how should we visualize -- I mean, we've talked about in the past, certain product management strategies for -- on the product. So how should we see the product life cycle beyond the second half of next year in the context?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [56]

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So Abhay here. Nitin, hopefully, in the quarter 4 of this financial year, we should be able to launch a life extension -- life cycle extension product in the market, which will make it difficult for retailers and wholesalers to substitute our product. So that is something which is on the anvil. And hopefully, in Q4, we'll be able to launch that.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [57]

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And sir, do we foresee -- with this launch, do we foresee a very minimal impact of the generic introduction? Or how should we look at it?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [58]

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Difficult to estimate. I mean we are hopeful that the differential that we will have, doctors will prescribe the product more than what they are doing today. And also parallelly, the substitution is happening today in the market will reduce. So we have our own modeling and assumptions, but eventually, how it pans out in the market is something that we wait and watch.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [59]

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Okay. And if I could push the last one on that, is ABSORICA, a meaningful business of the specialty business right now?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [60]

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In the context where ILUMYA is gradually ramping up and CEQUA is a literally a 2-week launch. So in the overall context of the branded business as it stands today, it becomes a meaningful contract.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [61]

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And if one more last thing. Clearly, on the India business, 2 things. One is, in the current quarter, was there an impact of the strong and [infective] season, which is there? Did that provide some tailwind to the business? And secondly, your -- from H1 to H2 perspective, is there any seasonality in our business, given the acute mix, which is there in the business now?

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [62]

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Yes, mister. As you know, we have chronic and acute business. Our acute business is more seasonal, so that impact, you can see in quarter 2 and quarter 3. Yes. But as all of you don't like that, our major business is a chronic business. And actually, the small part of the business.

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Operator [63]

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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 [64]

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Sir, you have signed at least 3 or 4 China deals in the last 3, 4 months. So anything that you can share as to what is changing between now, and say 1 or 2 years back is something that's facilitating more imports over there? And second, for both generic as well as specialty products, what is the sort of basic studies that you need to do and the regulatory time lines, which are involved? And sorry, one more. Do you -- is there a need for you to do local manufacturing or the manufacturing can be done outside of China?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [65]

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Sameer, many questions. So I don't know, Kal is in China, Kal, would you be able to respond?

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Kalyanasundaram Subramanian, Sun Pharmaceutical Industries Limited - CEO of India Business and Emerging Markets & Whole-Time Director [66]

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I like them a little bit. Sameer, China as a market is changing. The government wants what they call a consistency-tested product, which means bioequivalence, bioavailability data and preferably products registered in the U.S. or registration in China. So that, by itself has opened some opportunities. But more than that -- how do you say, we have so many branded products with IP protection, and China is a large market. So some of that, we have licensed out to our partners. At this stage, there is no, as a requirement, a plan for local manufacturing. And the whole thing is evolving, so it will be difficult for us to give a forecast on how big the market is likely to be, how big our sales is likely to be in China in the next few years. So if there's anything that I've left out, Dilip, you can answer.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [67]

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Sameer, also I think, for many essential drugs, China has reduced the -- our sales aid for doing China study, which historically, was a requirement, that you needed to do 13 Chinese patients in China. That is now no more requirement if your lead product is listed in the medically-necessary product list. So the current -- say, ILUMYA is not in that list. But other IL-23, which were approved when that list was being published are in that list. So I mean, this just to give you a reference. Our ODOMZO also is in that list.

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [68]

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There is no ratio difference than the clinical requirements are not much in China today compared to what it used to be earlier.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [69]

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So sir, if you need to launch Odomzo, can you start doing it tomorrow? Or do you -- is there still some time lag between now and then?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [70]

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So we will need an approval in China. We need to submit all the (inaudible) and the data, then they determine whether we need to do what additional studies are required. If it's deemed medically necessary, and if there is no ratio difference in the efficacy, and they may approve the product without any clinical study.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [71]

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Okay, great. And so the second question -- sorry, you were saying something.

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [72]

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No, what I'm saying, it's a process. So we have to go through that process. It's not automatic approval, and it's not approval, like I submit application today and they approve it tomorrow. So like a normal process, and we need to get waivers for clinical studies.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [73]

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Okay. And sir, the second question is regarding the easy-to-swallow launches in the U.S., I think you've done 3 so far. And 1 Kapspargo, if I'm not wrong, has been more than a year. So can you just talk about this? Is this going to be a whole basket that you're trying to do? Maybe half a dozen, dozen? And what kind of opportunity is there for these products?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [74]

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So clearly, it meets an unmet need because roughly in the U.S., about 30% of patients in the long-term care centers do suffer from this figure. So the pickup that we are seeing of these products are significant in the LTC setup. We also see that doctors who are in the LTC setup, who have used these products, clearly see the benefit and when they go back to their practice outside the LTC environment, they continue to use. So we are looking at different strategies by which we can then expand the core of the business and find ways to grow faster. You're right, none of these products will become so large that you can create a business with 1 product or 2 products. So we're working on using the platform to create a range of products, and I think maybe in 12 months from now in market, we could have something like at least half a dozen products.

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Operator [75]

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The next question is from the line of Dipan Mehta from Elixir Equities.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [76]

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Dilip, has something changed in the U.S. FDA level the way they inspecting the branch? Or any sort of changes are in taking? And then why suddenly so many Indian pharma companies are hit by U.S. FDA action, especially plants being inspected and here and there again, getting into a tender with U.S. FDA. So what is happening in the U.S. FDA regulatory front, if you can update us what are the changes taking place. And this has become a major risk for the industry, how you are dealing with it?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [77]

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Well, actually, I think there is a -- what you call, article, which is published or circulated by Lachman Consultants, which talks about presentation made by the FDA and sharing with the audience, the data and information related to the warning letters. And as per that, they say that last year, largest number of warning letters issued were to the U.S.-based facilities, and that is 54 number. The total number of warning letters issued to Indian companies, 17. So I think we have to look at this issue in the context of the increased regulatory vigilance by FDA, not necessarily only for India and Indian companies. What you're talking about, multiple audits by FDA to same site, I think Indian companies buy a large number of products and as a part of their assurance to the Congress, FDA has said that they will also try and conduct as many preapproval inspection wherever necessary. So same facility, if you have additional filings, which require preapproval inspection, they make visit to those facilities. So I would not like you to go beyond the -- I think that if you continue to be the largest filer of new ANDAs in the world, you will have large number of inspections. That is no solution to that as an issue.

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Dipan Anil Mehta, Elixir Capital Limited - Chairman of the Board [78]

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But nothing has really changed in their stringent criteria, whereby they are required kind of which we are getting more and more warning letters or the risk factor has increased on that.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [79]

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I mean, nothing -- I mean, of course, as regulators see any kind of a risk in 1 inspection, whether in India, U.S. or in Europe. And if they feel that similar risks exist in other facilities, then they had that as a part of the inspection plan in whichever new inspection they are doing. So like that, there will be continuously changing focus of the FDA inspections.

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Operator [80]

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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 [81]

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Sir, first question on the India business, the 12% growth is a good number. If you could just break it into volume, new product and price. And we've been seeing some volume growth for most of the industry coming down. Your thoughts on the general trade generics and others? Is it impacting the volume growth?

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [82]

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No, I would not like to give a breakup of how much growth is coming from new products. But we have got a decent volume growth and that volume growth, also, you can see from IMS and AWACS data, that's in line with market.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [83]

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Okay. And your thoughts on the increasing presence of Jan Aushadhi and the trade generics?

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [84]

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As I said, it's not having any meaningful impact on us. That's what I can say.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [85]

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No, actually, I think in the past, we've also indicated that Jan Aushadhi have a very useful and important role to play in improving access. And I believe that, to that extent, industry and Sun Pharma and IP and all of us are encouraging government to focus on improving access using the Jan Aushadhi. And there will be possibly some amount of impact of some of the patients preferring to buy product out of Jan Aushadhi. But as Kirti said, it is not a meaningful impact, but I think rather than looking at every issue in terms of business impact, we also need to look at patient benefit and access to medicine.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [86]

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Understood. Great. And secondly, sir, on the new launches that we are seeing, I mean, are you happy with the current run rate of launches? And post -- especially post Halol resolution?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [87]

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Yes, Abhay, would you like to respond?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [88]

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I mean we have said this -- as somebody running the business, I would always like to have more launches than what we get, but it's a process, and we follow the process, and I think our overall performance as a team, all parts of the functions put together, I think we are launching a good number of products in each quarter in the generic side. So the pace is reasonably good.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [89]

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The reason why I ask is, if you see Y-o-Y, excluding the one-off generic business, the orders that you got, clearly, I mean, it is flattish. And we saw some launches also, so what is really not -- that the base business is not able to grow? Is it -- there's still some chunky products, which is seeing erosion? Or is it the new launches not getting the fair share, which you used to get in the past?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [90]

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So when you have a decent size base in the generic portfolio, even if you have -- and I'm making up a number of 5% kind of a decline in pricing. And that leaves a big hole for you to fill. And not necessarily that the pace of launch of new products will fill up that hole very quickly. And that is sometimes the reason, in this case, also the reason why you have flattish kind of a growth.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [91]

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Okay. Can I just add one more? Hello?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [92]

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Yes. Go ahead.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [93]

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Yes. Prakash, go ahead.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [94]

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Yes. Just on that rationalization of some of the SKUs and some of the products that we spoke about, I think, a couple of quarters back. Is that process done? And have you launched? Yes. That's the 2 questions I had.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [95]

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You are talking about the U.S. generic business, still?

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [96]

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Yes.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [97]

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Okay. So it's an ongoing process, which is never going to be like done. I mean, every quarter, 6 months, we will continuously look at our portfolio and look at the opportunities to maybe launch a dormant ANDA, maybe look at products where we don't make money and whether we should rationalize. It's an ongoing process. So I would never be able to say it's done.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [98]

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Abhay, he is asking about the Lialda?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [99]

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About what?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [100]

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Lialda, which is what you call is mesalamine? We have one on store mark.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [101]

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I heard the question as rationalization of SKUs.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [102]

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So there was a Part A, Part B.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [103]

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He asked 2 questions.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [104]

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Okay. Maybe I lost it because the line sometimes goes a little blank here. Prakash, what was the question? I didn't again understand?

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [105]

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So first, you answered partly on rationalization, which is an ongoing process, but is a large part of rationalization done, is what was the first question. And secondly, on about post-approval, what are the thoughts on launching Lialda? Have you launched it?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [106]

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No, we haven't launched it so far. We should in the near term.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [107]

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And a large part of the rationalization, done? Or are you still saying that it's an ongoing process and every...

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [108]

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It's an ongoing thing. That's what I said, I mean, it's an ongoing thing. I'd never be able to say it's done.

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Operator [109]

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The next question is from the line of Prashant Nair from Citi.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [110]

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Sorry, I don't have any further questions.

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Operator [111]

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Next question is from the line of Sameer Baisiwala from Morgan Stanley.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [112]

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Abhay, just on ILUMYA, my guess here is -- and where are the number that I have -- is that they're roughly about, in terms of size, the addressable size of the market is about 35,000 to 40,000 new patients on ILs every year. Does this number look broadly okay? And is this going up or going down?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [113]

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You're saying 35,000 to 40,000 new patients per year?

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [114]

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Yes, for IL treatment? And this should be then TNF and...

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [115]

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I really don't know how you were able to segregate between existing and new patients because, really speaking, every time you go for a new dose for any given product, you re-require a new prescription, so to say. So it's very difficult to segregate between old and new patients. So it's -- so there is -- to say that an RX is new patient is a very difficult thing to say. But yes, I mean, if you look at the growth of the market, you are like -- it's a growing market. My sense is, at least, there is a 10% kind of a growth in the overall therapy.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [116]

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I mean that includes DNS and others? Or this is only for IL?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [117]

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I'm looking at total psoriasis market, total psoriasis market. And within that, of course, the IL-23s have the largest part of the growth.

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Kalyanasundaram Subramanian, Sun Pharmaceutical Industries Limited - CEO of India Business and Emerging Markets & Whole-Time Director [118]

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So Sameer, I think what is happening is that because of safer biologics, the overall percentage of patients treated with biologics is going up. And within the biologics, the relative percentage of patient treated with IL-23 is going up faster. If you see last quarter, then in terms of prescription growth on the SKYRIZI and ILUMYA have added new patients. So overall, I think we are expecting that IL-23 will continue to be a preferred treatment option for doctors for treating psoriasis because of duration as well as for safety and overall efficacy.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [119]

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But does this answer your...

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [120]

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Shall we say it is significant? Because in the last 3 months, I mean the quarter 2 is actually the summer months here. So you actually see a decline in the number of patients going out to the doctors for treatment. Every product, barring ILUMYA and SKYRIZI, have declined in the quarter. So that's an indication of acceptance of both the class as well as our product.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [121]

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Okay, great. No -- so that answer then, would you not to add TREMFYA to this?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [122]

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In the last quarter, they have been flat.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [123]

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Okay, got it. And to your point, Abhay, on autoinjector versus the product that you have sub called injectable. Two points here. I mean, because the patient has to go to a clinic, there's additional payment for doctors, I don't know whatever it is -- or doctor staff, $200 or $300 per visit. So is that sort of an inducement for doctors to opt for non-auto-injector product? Is that a meaningful sort of consideration?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [124]

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Absolutely no. Absolutely no. I think even on a call, Sameer, we should never even say, inducement of any kind, but it's absolutely no. I think the doctors, when I speak to doctors, and we have met and worked in the field with my team and met doctors who has Mr. (inaudible) for example, doctors actually welcome the opportunity to be able to give the doses in clinic, A, when they start, and even for subsequent follow-up visits when the patient comes back to them, and they see the response and then gives a second dose, they're actually able to visually see the visible effect on the clearance on the skin. So doctors allow the fact that they're able to actually sort of touch and feel the product. I think that's the motivation for doctors to inject in clinic.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [125]

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Also Abhay, what it also does is improve on plans because once a patient self-administers, there's no guarantee that he will administer it himself on time.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [126]

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So all the compliance and also the doctors seeing the impact the product has on the patient, I think these are the huge motivators.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [127]

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Okay, great. And thanks for correcting me on this. Just one more question. Dilip, broadly, on the business model, when you talk about improving efficiencies, it's across the whole generic network across geographies and cost optimization, which are some of the big areas. And do you think you've got enough and more room to improve on these over next several quarters?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [128]

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Yes. We have, we have. Because I think we've large number of new facilities, which are currently not fully utilized. So as we ramp up the volume and continue to supply to markets, I think our unabsorbed manufacturing over it will continue to fall. So I think there is opportunity for us to continuously improve.

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Operator [129]

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The next question is from the line of Sourav Patra from Edelweiss.

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Nimish Desai, Sun Pharmaceutical Industries Limited - Head of IR [130]

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We can move on to the next question if Sourav is not available.

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Operator [131]

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The next question is from the line of Srihari from P.C.S. Securities.

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Srihari Chintalapudy;P.C.S. Securities;Analyst, [132]

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Firstly, if I understood correctly, the R&D spend on your specialty portfolio is around 20%. So going forward, let's say, 2, 3 years down the time when the business gains traction, what is the kind of number we can look at that? And secondly, are you reading out the Pola integration cost for the first 2 quarters?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [133]

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So I think the R&D spend for specialty product was 26% -- 24%. But as I explained, I think in my readout that it's because some of the studies, which should have started were not started in time, which should happen sometime in this quarter.

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Srihari Chintalapudy;P.C.S. Securities;Analyst, [134]

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No, I think it's 24% of the overall R&D spend. So as a percentage of sales of the specialty portfolio, it's around 20%, I guess. I was talking about that reason.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [135]

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Okay, okay, okay. No, both of that will go up. The overall percentage spend on specialty in the total R&D spend, also as a percentage of the spend for the specialty business, both of that will grow -- go up.

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Srihari Chintalapudy;P.C.S. Securities;Analyst, [136]

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Okay. So I mean, will it be substantial? Or will it be around the 20% mark?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [137]

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I'm not able to specifically respond about the mark, but it all depends on what kind of studies we are planning and what is the speed with which we are able to enroll patients.

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Srihari Chintalapudy;P.C.S. Securities;Analyst, [138]

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Yes. And the second one was pertaining to the distributor's integration for Pola. Any cost figure that you would like to mention?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [139]

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Where do you -- where did you get this information about integration cost because...

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Srihari Chintalapudy;P.C.S. Securities;Analyst, [140]

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When you're talking about other expenditure, you had mentioned that there is some cost pertaining to the integration of distributors.

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [141]

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So what we said in the other expenses is that it also includes Pola in the current quarter vis-a-vis the previous year, Pola was not...

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [142]

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(inaudible) Sun Pharma Distributor, we were giving a discount to Aditya Medisales so that was not included in our expenses. Now there is no top line plus on top. And more or less, whatever we were giving to Aditya Medisales, they were spending in terms of distribution cost. So now that is directly coming into our books.

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Operator [143]

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The next question is from the line of Hari Belawat from Techfin Consultants.

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Hari Belawat;Techfin Consultants;CEO & Director, [144]

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Congratulations for achieving good Y-o-Y results during this quarter 2. Yes. And sir, the finance part really, achieved very nicely, INR 45 crores reduction on Y-o-Y. But sir, this noncurrent liabilities, these borrowings have increased from INR 1,522 crores to INR 2,135 crores, similarly noncurrent total liabilities also in an increase. Then how come there will be a reduction in, I mean, total financing costs?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [145]

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No, the borrowing, you have to see there are 3 floor places in the balance sheet where the borrowing lies. One is long term, other is short-term, then current maturity. It also lies in the short term. What we told you is, considering all the holding buckets together. So that is the number, which we have stated. And that is the way we see it also.

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Hari Belawat;Techfin Consultants;CEO & Director, [146]

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Yes. Totally, including current assets and this current liabilities and this noncurrent liabilities, it is reduced. Do you mean that?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [147]

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Yes, yes. So we see borrowing as a bucket.

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Hari Belawat;Techfin Consultants;CEO & Director, [148]

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Okay, okay. Sir, another question is this income tax assets. In the asset part, noncurrent execution. Income tax assets of around INR 3,000 crores. Similarly, deferred tax also is INR 3,000 crores around. Are we getting any return on this? And what type of these assets are there with -- for income tax?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [149]

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So these are mainly the deferred tax assets.

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Hari Belawat;Techfin Consultants;CEO & Director, [150]

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Okay. Even income tax assets? Or what are the INR 3,000?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [151]

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For balances playing also with the government on the payment made, apart from the DT assets.

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Hari Belawat;Techfin Consultants;CEO & Director, [152]

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Okay. Any return on that is coming? Or just -- it is a deposit with them only?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [153]

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It's a timing difference. No, DT asset is a timing difference.

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Operator [154]

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The next question is from the line of Charulata G. from Dalal & Broacha.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [155]

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Congrats for the results. I wanted to understand where do you see the EBITDA margin going from here.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [156]

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Generally, we don't guide further guidance -- I mean, EBITDA. I think our guidance is restricted to top line guidance. The focus is for us to go continuously improve our performance in such a way that we continue to improve our EBITDA margins. Historically, we used to have significantly higher margins than what we have. So the focus would be to try and get as close to those margins as possible.

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Charulata Gaidhani, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Analyst [157]

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Okay. And secondly, I wanted to get the time lines for China. By when do you see China revenue accruing into your books?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [158]

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Kal, you want to answer? Or...

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Kalyanasundaram Subramanian, Sun Pharmaceutical Industries Limited - CEO of India Business and Emerging Markets & Whole-Time Director [159]

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China, we have to go through a regulatory process for a number of products. So in the short term, we don't anticipate to accrue any significant revenue in China. So depending upon the speed with which we are able to get approvals and launch, we will pick up momentum. At this stage, it will be difficult for us to say when we will start seeing significant meaningful revenues coming out of China.

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Operator [160]

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The next question is from the line of Vishal Manchanda from Nirmal Bang.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [161]

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Sir, can you share what percentage of your pending ANDA filings would be non (inaudible)?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [162]

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I mean, I don't have that detail with me.

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [163]

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And Vishal, we don't share the statistic.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [164]

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Right. And could you provide a guideline on what time frame would it take for you to monetize the ANDA pipeline, say, next 3 years, the pending ANDA pipeline can be monetized? Or say, 80% of the pipeline can be monetized?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [165]

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So many of the products, I think, we may be better fit to a long expiring patent. So we may not -- even though we get tentative approval, we may still be far away from market. So idea is to find a way to grow the business with new approvals and improving both pricing and the share of the existing partners.

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Vishal Manchanda, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [166]

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And one -- just final one on ILUMYA. So I was just wondering, like most of the competitors on ILUMYA have approvals in multiple indications. So that basically allows them much larger volumes. And having larger volumes also allows them to offer better rebates to insurers. So is this a position -- disadvantageous position for ILUMYA to be in?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [167]

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I mean...

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [168]

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Yes. Abhay?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [169]

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You can go ahead.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [170]

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No, no. You continue.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [171]

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The product that we licensed from -- there were certain studies which were done primarily in this indication. So that's where we start off with, and that is the market that we are in large markets, so we still feel we can make a reasonable dent in that market. We are also investing part of our R&D budget in [IITs] and other studies to expand the indications. So yes, having more indications, either adjacent or in completely new areas is useful. Clearly, it does give you leverage. I'm not sure whether it's only rebating, but clearly, from expanding the potential of the product, it does help us. And that's what we will. Relatively -- it's a little late start for us, but that doesn't stop us from looking at where is it that we can make a good enough dent and continue to invest and work on those indications.

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Operator [172]

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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 [173]

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Sir, my questions on CEQUA, you mentioned about some head-to-head study that you would like to do. Any time line that you can share when you plan to start? And how long will that take? And secondly, the initial response that you got on CEQUA, even it's an established molecule, are you expecting a faster ramp-up of sales for this particular product?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [174]

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Again, a little bit of breaks in the question. If -- I'll repeat what I understood. I think one question you asked was head-to-head study on CEQUA, correct?

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Saion Mukherjee, Nomura Securities Co. Ltd., Research Division - Head of India Equity Research [175]

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Yes. What is the time line? Like when you were planning to start and how long will it take?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [176]

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I think...

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [177]

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We are evaluating area studies. We haven't taken a decision.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [178]

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Yes. Yes.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [179]

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We want the study to start. But I think we believe that we have a product which can be potentially superior to the products which are in the market. So that is what we will try and establish in the head-to-head study. Yes, Abhay, you can respond about the second part.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [180]

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I couldn't hear the second part. Can you repeat?

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Saion Mukherjee, Nomura Securities Co. Ltd., Research Division - Head of India Equity Research [181]

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Yes. I just wanted to get a feedback from you on the ramp-up rate of CEQUA, given it's an established molecule and the response that you're seeing initially. Is it going to be a bit different from what, let's say, ILUMYA, which it is -- which is among gradual ramp-up? And is it more like the existing patients from the status, moving to CEQUA, seeing response in the market?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [182]

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So all very valid questions, and I -- these are questions I would ask the team literally every day. The thing is, it's just literally 2 weeks into the launch. So what we have is literally 10 working days kind of an experience in field. If my assumption, based on, say, feedback from the team and a few doctors is we are getting warehouse patients. That there are patients who are not completely satisfied with current therapy, be it existing products in the branded space or even in the OTC space. And doctors have quickly put those patients on to CEQUA, that's my initial sense.

And I think more to look forward to maybe in the next quarter. We will able to share to you a better quality data with you.

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Operator [183]

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The next question is from the line of Kunal Dhamesha from SBICAP Securities.

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [184]

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So the first question is related to the DTC campaign for ILUMYA. So I believe we have previously suggested that DTC campaign for ILUMYA will run throughout the FY '20, but do we see any decrease in intensity in terms of DTC campaign, let's say, in FY '21 or FY '22? Or it will run at the same run rate that we are running in FY '20?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [185]

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I think my answer remains the same. This is our first experience as a company and the first year that we have gone into DTC. So very periodically, we look at different metrics and see the impact that DTC has on the product. And during the budgeting cycle of next year, looking at different scenarios, we will take a call. So that's how the process will be.

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [186]

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Okay. But let's say, on a competitor basis, do they continue at a similar level, if you have done any analysis on that?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [187]

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Kunal, historic data suggests that they would be doing it continuously, but I'm not privy to that information, obviously.

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [188]

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Okay, okay, okay. And secondly, on CEQUA, I know we're just into 2 weeks into launch. But any kind of discussions we are having with payers and how this can proceed the formulary discussions?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [189]

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So while we were waiting for the launch of the product, we were already speaking to payers. And we started off with a reasonable access. Now that we actually have a product in market, it will be discussed as we gather pace, and we will try and improve the access from where we are to a better kind of an access for patients.

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Kunal Dhamesha, SBICAP Securities Ltd., Research Division - Analyst of Pharmaceuticals [190]

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Okay. And will it be with more of a commercial insurance? Or would it be Medicaid or Medicare, any channel or color?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [191]

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Commercial payers will definitely be the first priority in the sense that they will be the first to quickly take a yes or no decision at certain points. Medicare is a process, and that process, I expect, will take anywhere from a year to 1.5 years.

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Operator [192]

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Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Nimish Desai for closing comments.

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Nimish Desai, Sun Pharmaceutical Industries Limited - Head of IR [193]

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Thank you, everybody, for joining this call today. If any of your questions have remained unanswered, please do send them across, we'll try to get a response to them. Thank you, and have a good day.

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Operator [194]

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Thank you very much, sir. Ladies and gentlemen, on behalf of Sun Pharmaceutical Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.