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Edited Transcript of SUNPHARMA.NSE earnings conference call or presentation 13-Aug-19 1:00pm GMT

Q1 2020 Sun Pharmaceutical Industries Ltd Earnings Call

Mumbai Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Sun Pharmaceutical Industries Ltd earnings conference call or presentation Tuesday, August 13, 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

* 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

* Chirag Dagli

HDFC Asset Management Company Limited - Senior Equity Analyst

* Chirag Talati

Kotak Securities (Institutional Equities) - Senior Analyst

* Harith Ahamed Mohammed

Spark Capital Advisors (India) Private Limited, Research Division - VP

* Manish Jain;GormalOne;Founder

* Neha Manpuria

JP Morgan Chase & Co, Research Division - Analyst

* Nimish Nagindas Mehta

Research Delta Advisors, Research Division - Research Analyst

* Nisarg Vakharia

Lucky Investment Managers Private Limited - Analyst

* Nitin Agarwal

IDFC Securities Limited, Research Division - Analyst

* Prakash Agarwal

Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals

* Rajesh Kothari

AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director

* Sameer Baisiwala

Morgan Stanley, Research Division - Executive Director

* Shyam Srinivasan

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Sourav Patra;Edelweiss Broking Ltd.;Equity Advisor

* Surya Narayan Patra

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

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Presentation

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Operator [1]

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Good day, ladies and gentlemen and a very warm welcome to the Sun Pharma Q1 FY '20 Financial Results Conference Call. (Operator Instructions) Please note that this conference is being recorded. 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 first quarter FY '20 earnings call. I'm Nimish from the Sun Pharma Investor Relations team. We hope you've received our Q1 financials and the press release that was 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, Whole Time Director and CEO India, Emerging Markets and Consumer Health Care; Mr. Abhay Gandhi, CEO of North America; and Mr. C. S. Muralidharan, our CFO.

Today, the team will discuss performance highlights, update on strategies and respond to any questions that you may have. As is usual for the 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. Call transcript 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 first quarter of FY '20.

Let me discuss some of the key highlights. Our overall sales for the quarter were at INR 8,259 crores, a growth of 16% over the same quarter last year. We have recorded growth in most of the businesses that we're in.

We continue to focus on building up our Global Specialty business. the recent out-licensing of ILUMYA and CEQUA for Greater China market and the regulatory filing of ILUMYA in Japan are steps in this direction. Abhay will discuss our specialty business in more detail shortly.

We had indicated in the past that we will start giving out more disclosures on our specialty business, hence, from this quarter onwards, we're starting the practice of disclosing our global specialty revenues and the R&D spend on specialty products. Kindly note that our specialty product portfolio includes all our specialty products, including NCE, NBE and 505(b)(2) products.

For Q1, our global specialty revenues were approximately USD 94 million across all markets, while specialty R&D accounted for about 15% of total R&D spend for the quarter.

While R&D numbers seems a bit low due to the timing differences, and we expect these numbers to move up in coming quarters.

Given the competitive intensity in the U.S. generics market, we're consistently focusing on improving our efficiencies and cost structure to ensure reasonable returns for our generic business.

I will now hand over the call to Mr. Murali for discussions of Q1 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 Q1 financials already with you. As usual, you will look at the key consolidated financials. Q1 sales are at INR 8,259 crores, up by 16% over Q1 last year. Material cost as a percentage of sales was 29.8%, similar to the Q1 last year. Our cost was at 18.7% of sales, lower than Q1 of last year, but up 7% in absolute terms, mainly due to specialty staff cost increase. Other expenditure was at 29.6% of sales, higher than Q1 last year, mainly due to the branding and promotional spending for the specialty business and consolidation of the Pola Pharma acquisition in Japan.

This is also partly due to lower R&D cost. We expect higher R&D cost in the coming quarters. As a result of the above, the EBITDA for Q1 was at INR 1,881 crores with EBITDA margins at 22.8%. Net profit for the quarter was at INR 1,387 crores, up 31% over Q1 last year while EPS for the quarter was INR 5.80. In terms of the variance versus Q4 FY '19, since there was the transition of the India distribution business in Q4, the reported numbers cannot be compared with Q1 FY '20 numbers.

Let me now briefly discuss Taro's performance. Taro posted Q1 FY '20 sales of USD 161 million, up 4% over Q1 last year. Taro's net profit for Q1 was USD 66 million, marginally down over Q1 FY '19.

I will now hand over to Kal Sundaram, who will share the performance of our India and Emerging Markets business.

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Kalyanasundaram Subramanian, Sun Pharmaceutical Industries Limited [5]

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Thank you, Murali. First, let me take you through the performance of our India business. For quarter 1, sales of branded formulations in India were INR 2,314 crores, with a growth of approximately 8% over Q1 last year. The growth numbers do not reflect the growth of underlying business as for Q1 last year. We had the distribution arrangement with Aditya Medisales, which has now been transitioned to our own wholly owned subsidiary. The actual underlying growth for the quarter was approximately 12%. The India formulation business accounted for approximately 28% of our total sales. We recorded normal volume growth during the quarter. The transition of distribution business -- distribution of India formulation business to Sun Pharma, Sun Pharma's 100% subsidiary has been completed in Q1 and hence from Q2 onwards the entire distribution will be through this subsidiary. For Q1, we launched 10 products in the Indian market, Sun Pharma is the largest pharmaceutical company in India and approximately holds 8.2% market share in over INR 132,000 crores pharmaceutical market as per June 2019 AIOCD-AWACS report.

In an intensively -- intensely competitive market, we're focusing on retaining our strong brand equity with the doctor, while simultaneously putting efforts to improve overall productivity of our business. For the past 10, 15 years the incidence of chronic ailments in India have been on the rise. Chronic care therapies have been increasingly becoming important and the key growth driver for the industry. We expect this trend to continue in the coming years as well. Sun Pharma enjoys the leadership in various chronic segments and is well positioned to benefit from this trend.

We also continue to evaluate in-licensing opportunities for bringing latest generation of patent protected products to the Indian market. We already have 8 such products in our portfolio currently, Sun Pharma's strong brand equity with the doctors and its distribution reach makes it as a partner of choice for any company desirous of having a local marketing partner.

Let me now focus on our performance in emerging markets. Our sales in emerging markets were USD 194 million, flat over last quarter Q1 FY '19. Emerging markets accounted for 16% of our total sales. While this business recorded growth -- year-on-year growth in constant currency terms, unfavorable currency movements have impacted our reported growth.

Now I'll hand over the call to Abhay. Abhay?

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

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Thank you, Mr. Kal. I will briefly discuss the performance highlights of our U.S. business. For quarter 1, our overall sales in the U.S. were up by 12% at USD 424 million, accounting for approximately 36% of overall sales. This growth was mainly driven by a significant business of generic supply to a customer. For the overall generics business, we have not seen any broad-based improvement, and we expect the market to stay competitive. Let me now update you on developments on our specialty business. ILUMYA is gradually ramping up and is performing in line with our expectations. Patient numbers and doctors prescribing ILUMYA are steadily increasing. We continue to invest in promoting ILUMYA, including the direct-to-consumer promotion campaign.

For CEQUA, we're in the final stages of firming up supplies, and we expect to commercialize it in the U.S. in Q3 of this year. The sales force required for CEQUA's promotion is fully on board, and its cost is fully reflected in our quarterly financials. Our efforts of increasing prescriptions for Odomzo have started showing some initial results with a small improvement in our market share. We hope that the improvement will continue in the coming quarters.

I will now handover the call to Mr. Shanghvi.

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

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

Formulation sales in rest of world markets, excluding U.S. and emerging markets, were USD 167 million in Q1, a growth of 57 -- 56% over last year. This growth was driven by both organic efforts and the consolidation of Pola Pharma in Japan. ROW markets accounted for approximately 14% of Q1 revenues. We continue to focus on developing and utilizing APIs for captive consumption for benefits of vertical integration. For Q1 the external sales of our API business were at INR 461 crores, up by 17% over Q1 last year.

We continuously invest in R&D for enhancing our pipeline. Consolidated R&D investments for Q1 was INR 422 crores, accounting for 5% of sales.

Our current generic pipeline for the U.S. market, includes 108 ANDAs and 6 NDAs awaiting approval with the U.S. FDA. As you all know, our R&D costs are not evenly spread out across all 4 quarters of the year. We expect to incur higher R&D cost in the coming quarter. This R&D spending enables development of future product pipeline, including specialty and differentiated products.

And finally, I wish to announce some changes in the senior management responsibilities. Mr. Kal Sundaram, who will -- who till now was heading our India and Emerging Market business, will now handle our strategic initiatives as well as our Japan and China businesses. Mr. Kirti Ganorkar, who was heading the global business development function, will now head the India Formulation business while the generic BD function will be handled by Aalok Shanghvi. We will look for a fresh recruitment for the branded business development function for global responsibilities.

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 Chirag Dagli from HDFC Mutual Funds.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [2]

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Sir, on the DTC spend, how does the phaseout happen over say Q4 of last year, Q1 this year? How should we think about -- so let's say if it is 100 for the full year, how would it have been spread over these 2 quarters?

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

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So it's a bit seasonal in the sense that during the summer months and during the holiday season in December it generally comes down. So although it's difficult for me to give a quarter-on-quarter, for example, March, April, May would be a little on the lower side, then it will ramp-up. And again, towards November, December, Jan, it will come down a bit and ramp up. So little pulse where 2 quarters will be on the higher side and 2 quarters on the slightly lower side. But it will not match exactly to the financial quarters.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [4]

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And is this -- does it continue over the next year as well? Or during launch, is it significantly higher than on a continuing basis?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [5]

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Honestly, we haven't yet decided and that will be part of our budgeting process when we look at next year. And all said and done we have been doing DTC only for a few months now. So to assess the impact and see whether it makes sense to continue or to scale back is something we haven't decided as of now.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [6]

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All right, sir. And sir, when you look at the secondary data whether it is IMS or Symphony, are there any -- do you want to call out any specific -- are the trends similar to what you see based on your internal data or are there any dramatic differences that you want to call out? Because we look at the IMS data, and it shows a very, very slow ramp-up versus peers. So would you agree with -- that your internal data also is similar? Or is there something as well?

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

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So our product being a medical benefit product from a payer perspective, we do use a lot of specialty pharmacy. A lot of them will be covered by Symphony especially, but some will not be. So external data will never be very accurate, but it gives you a reasonable trend, but I would not call it very accurate though.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [8]

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But the trend is broadly sort of -- it's not way off?

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

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No, I would not call it way off. I see an improving trend when I look at the internal numbers. I don't know what is that you're trying to call out when you look at IMS or Symphony, but I see an improving trend when I look at our internal numbers.

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Chirag Talati, Kotak Securities (Institutional Equities) - Senior Analyst [10]

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Fair point, sir. And just the last bit sir, Mr. Shanghvi, in your opening comments you mentioned that you're looking at trying to make reasonable returns from the U.S. generic business. Does it mean that at the moment the capital productivity on that business is suboptimal?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [11]

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I think if we load the full cost, including the new investments that we've made on creating new manufacturing infrastructure, then it's possibly not in line with the overall profitability we have in other businesses.

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Chirag Dagli, HDFC Asset Management Company Limited - Senior Equity Analyst [12]

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Fair point, sir. And just a last clarification if I may, sir. The quantum of this large supply to generic one customer, quarter-on-quarter is it materially different? Q4 versus Q1, sir?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [13]

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It's a similar number.

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Operator [14]

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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 [15]

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Sir, just trying to understand the SG&A number ex of R&D since R&D you said it's

(technical difficulty)

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Operator [16]

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Ladies and gentlemen, the line from the management seems to have disconnected, please hold while we reconnect them. Ladies and gentlemen, the line for the management is reconnected.

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

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Prakash, you had a question. Go ahead.

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Operator [18]

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Sir, it seems Prakash is also disconnected. We will just move to the next question until he joins back.

Next question is from the line of Mr. Vakharia from Lucky Investment Managers.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [19]

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Sir, my question was that you had said that this large generic supply is for a finite period of time. Is this the last quarter for that supply or we still have visibility going ahead?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [20]

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This is the last quarter.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [21]

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So I think we were at a run rate of $380 million in the U.S. before this large generic supply. Is that the run rate that we should see going ahead?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [22]

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No, I think we have a guidance overall that factors all of this in the guidance. So you should not -- I mean, if you start asking us detailed question related to individual business, it will be difficult for us to respond.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [23]

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Okay. Second question and last question is, sir, that by when should we expect a slightly better growth in the domestic formulation business? I think 8% is much lower as per your standard of excellence.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [24]

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C.S., he is asking 8%.

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [25]

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Like I mentioned, the underlying growth is 12%. Within that even the Chronic Care business growth is higher than that. Last year, our primary sales reflected our sales into AML, okay. And this time sales is sort of ex AML/SPDL. So if you compare the sales ex AML/SPDL last year and this year, the growth is higher than the 8% what we're showing.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [26]

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Okay. But is this a new normal for large companies in the domestic formulation where 12% to 13% is the growth to expect? Or can we expect higher growth in the near future?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [27]

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If you look at the overall market dynamics, if you take 1 year, take 3 years, it has been sort of running even below 12%, 13%. So for us to expect a further acceleration at this point, I don't anticipate that. Mr. Shanghvi has got significantly longer and deeper experience, in my view.

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

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We can't be disconnected with the overall economy.

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [29]

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Correct, correct.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [30]

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So I think 12% for this.

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Operator [31]

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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 [32]

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Sir, in your press release, you mentioned one drug going into clinical this year. Is this related to additional indications for ILUMYA or is this a new opportunity?

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

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It's a new product. So -- and it's not this year, but it's next year.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [34]

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Okay, okay. And...

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

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Phase I study next year.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [36]

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This is a new opportunity?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [37]

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Yes, it could be a new drug.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [38]

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Understood. And my second -- okay. And my second question is on R&D. We mentioned that R&D was 15%. If I look at my generic spend, is it fair to assume that generics spend is likely to remain similar year-on-year or even from this quarter and large part of increase would be led by specialty?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [39]

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No, I think we have an overall guidance for the R&D. And hopefully, as we see we will be coming within that kind of overall guidance. The overall guidance is significantly more than the -- this quarter's R&D spend.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [40]

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Understood. And last, on CEQUA, sir, any reason for why the drug is being delayed again? I think last quarter we had guided to a second quarter launch, especially given the risk of generics RESTASIS?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [41]

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Neha, I had probably mentioned this in my last call as well. We had certain challenges related to manufacturing and supply chain. These are more or less...

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [42]

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So this is the key reason.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [43]

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Yes, and I think we're now putting all these elements in place for our Q3 launch.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [44]

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Also I think the other point which you raised about the potential generic approval of RESTASIS equivalent product. We believe that in spite of generic cyclosporine equivalent to RESTASIS there is a significant opportunity for CEQUA in the U.S. as well in the other international markets.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [45]

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But sir, don't you think it could potentially impact the pricing strategy for CEQUA or you would think both those opportunities -- I mean CEQUA would have a separate opportunity in the U.S. irrespective of the number of players in RESTASIS?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [46]

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I better let Abhay respond.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [47]

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I don't think it will have a pricing impact on the way we will price our product, but like we have said it in earlier calls as well that there may be some step-throughs by some of the plans when it comes to access. So that would be there, however, there are a lot of doctors who tell us that they feel the need for a new product considering the fact that existing therapies do not give the desired results and wherever we have seen, so far, our product does very well in patients of dry eye, so we feel there is an opportunity, and that's the reason why we're launching it as soon as we can, Q3 is definitely I think on.

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Operator [48]

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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 [49]

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One clarity, Dilip bhai, on the number that you mentioned, global specialty sales is $94 million, does this only include on patent products or let's say, for example, specifically we have done 2 acquisition now in Japan, now what is portfolio in Pola Pharma, would those numbers go here or not?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [50]

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No, it will not go.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [51]

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So it is only on patent products.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [52]

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Yes, yes. So Pola Pharma products are all of patent products. It's not covered here.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [53]

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And not even the Novartis one?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [54]

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Yes, not even Novartis.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [55]

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Sure. And the second question was on this -- in the notes to accounts it's mentioned that the other expenses include some amount of settlement expenses related to Modafinil. Do you want to call out how big is that number? Because you always mentioned in the past how much you paid for that.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [56]

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Yes, since it is not a material number, we've not disclosed.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [57]

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Okay. And just a related question to this, why is Sun Pharma not ring-fenced from these litigations related to Modafinil and your annual report discloses many more products also -- several of those litigations were prior to when we acquired Ranbaxy?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [58]

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No, I think our agreement doesn't provide for ring-fences Sun Pharma from -- because Daiichi wanted a clear break. Also from our point of view when we evaluated the litigation, we felt reasonably comfortable with the position of our defense. Cost of the litigation is factored in our acquisition cost.

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Operator [59]

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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 [60]

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Dilip bhai, can you talk about the outlook for Levulan and the competitive activity over there, especially after your court case win?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [61]

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Maybe Abhay is more online, so he can respond.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [62]

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So I think we're winning back large chunks of the market. And when I see the current quarter and my personal outlook -- but I am an operating person, mind you -- I feel very confident in the way the product is doing this year.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [63]

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Okay. Great. And sir, second question is on the 2 PAI inspections that were done at Halol, I think few months back. Is that a early sign of a substantive or a niche or a complex product approval that we should expect for the U.S.?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [64]

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Sameer, it seems like either.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [65]

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Okay. Okay. Fair enough, sir. Sir, with your permission, one more question, if I may. And this is for you, Abhay. Can you share some insights into psoriasis prescribing dynamics in the U.S.? As in ISR relatively recent in the last 5 years or so. So do patients necessitate a need to have both sort of systematic DNF to ILs or are the prescribing habits changing so that means the funnel for ILs are pretty more direct and bigger? And second is ever since the Skyrizi launch, how is the formulary positioning impacted?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [66]

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Sameer, it's a very broad question that you've asked me really. To be honest, a lot of doctors prescribing behavior will be dependent on where a particular patient is in terms of his or her formulary coverage. So to be able to aggregate and give you a one-liner becomes very difficult for me. When you speak to doctors, let's assume it was an even playing field and there was nothing called a formulary coverage or just to make it very simple, if everything was out of pocket like we have in India, then the propensity of the doctor to use an IL-23 today would be the highest. But in the U.S. life isn't so simple because of coverage and step-throughs and what you need to fill in some cases. And it's highly patient-dependent. So although the doctor does want to use more of IL-23, formulary and coverage restrictions may not always make it possible. Conceptually and in terms of what the doctors would like to do, there is clearly -- the wins are in favor of the IL-23s.

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

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Also I think other point which, Sameer, you asked about Skyrizi, not only Skyrizi but also TREMFYA, both the products, the current company is actively looking to substitute their older product. Say, J&J is actively encouraging substitution of what you call Stelara patient to TREMFYA. In the same way, AbbVie is actively switching patients from Humira to Skyrizi. So that's a very different market dynamic, because J&J knows all the patients who had breakthrough psoriasis with Stelara. So they are actively working to substitute. So I think ILUMYA doesn't have a, what you call that business and or actual compulsion to substitute. And I have said this in the past also is that if doctors had known us earlier then we would have done better than what we are. But hopefully, we should be able to do much better than what even our business plan for this year indicates. Yes, Abhay?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [68]

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Sameer, just to add on to I think what I understood of the last part of your question, if I understood it currently, has the launch of a new competitor changed our formulary position, then the answer is no. It has not adversely impacted our formulary position. I hope that answers the last part of your question, if I understood it right, I mean.

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

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Absolutely, because for any given plans with the larger plan, I mean no plan would have 3 IL-23s, would there? And earlier you may have been 2. So therefore, the moment Skyrizi came, can they impact you, can you exclude you out through bundle rebating, et cetera?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [70]

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I really can't even talk about bundle rebates, but there are -- so we haven't seen any impact, Sameer. Also, you need to remember that we're not a pharmacy benefit product. So as far as -- we're a medical benefit product. So in that space, we're the only IL-23.

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Operator [71]

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The next question is from the line of Rajesh Kotari from AlfAccurate Advisors.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [72]

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My question is with reference to the operating cash flows. If I look at annual report of last year, in FY '19 there is a significant deterioration in the working capital, so if you can just give some color that how do you see the working capital as a percentage of sales or a number of days going forward?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [73]

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So you are right that the overall working capital position, what you stated is right. That was predominantly driven by across markets, but also while U.S. driven by the special business and Pola Pharma acquisition. However, currently in the current year we're working on an active plan to contain the enhancement in working capital happened in the last fiscal.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [74]

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So if I'm not wrong, your cash conversion cycle, which was around 213 days, which is increased to 286, in fact, FY '17 was 196, which has gone up to 213 and has gone up further to 286, how should one look at FY '20, do you think that you will come back to around 200 days that's the target and if the answer is yes, how we're going to achieve the same?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [75]

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So we're working on an intensive active plan to reduce, contain both on inventory and receivable side. So instead of getting into particular working capital cycle number, what we can say is that we would like to get back to our original position much improved, which was one year before this fiscal. So we're working towards that.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [76]

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So just one important thing since you mentioned inventory and receivables, but actually it is your payable days which has not increased. So if I look at your payable days, 3 years back it was 207 days, then it increased to 234 in FY '19, and reduced to 192 days. So don't you think it is a more related by payables rather than just inventory and debtors?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [77]

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All the 3 parameters we're looking at, receivables, inventories and payables, combination of these we're looking at improving the overall working capital chain.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [78]

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And also our intention is not to increase the payable days, but it is to further reduce the payable days and see how we can capture the cash discount. So I think the idea is to become more efficient in everything that we're doing and that's the objective.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [79]

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Would you like to give some outlook on this number in terms of the number of days of working capital, your target or something like that over the next 1 year?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [80]

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No.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [81]

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No.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [82]

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Because, in case it's very, very important sir, I was just thinking from...

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [83]

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I understand. I think the idea is for us to work towards significant debt reduction this year. And hopefully, we should be able to achieve that.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [84]

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Okay. If I may just add one question in related to your accounts. Your SG&A has went up significantly in FY '19. Would you like to give guidance on SG&A as a percentage of sales?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [85]

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Normally, we don't give any specific guidance related to any particular expense space.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [86]

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In this context it must be the DTC of ILUMYA and the full factoring of the CEQUA are 2 big contributors to increase in SG&A.

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Rajesh Kothari, AlfAccurate Advisors Pvt. Ltd - Founder, MD & Director [87]

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All right. So probably this year it will become more normalized?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [88]

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I mean it becomes a norm rather than normalization.

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Operator [89]

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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 [90]

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Yes. I got cut off twice, so I'm not sure if I'm repeating the question. So a question on gross margins. So if you see the Q-and-Q movement which is down about 370 basis points. And in fact, the India business, which relatively is a higher gross margin business, is also up. So could you explain the reason, please?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [91]

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See, it's driven mainly by the product mix and also certain related to the India distribution transition, which happened in Q4. So this is the 2 major factors which driving this.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [92]

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Okay. So I mean India that's what I said, India is higher-margin business?

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

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And also said product mix, you said that product mix across the...

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

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Okay. Across the geography you're saying. Okay, okay. And sir, secondly, on the staff cost and tax rate. So staff cost typically this quarter is the annual increment, which is double-digit number. So is this pushed out? Or is this -- the increments are done with the reduced workforce, how should we think about that? And the tax rate for -- guidance for the year sir, because particularly low this quarter?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [95]

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As far as staff cost is concerned, you are right, the annual merit increase in the current quarter is included. So it's not pushed out, it's fully baked into this current quarter.

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

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Okay, and the tax rate, sir?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [97]

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The tax rate we have said also progressively to increase so that has been our guidance earlier also.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [98]

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But I mean any number for the year sir, you're looking at?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [99]

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It's very difficult to give any particular number for the year, but we did maintain that it will progressively increase as we move each quarter and finally, of course, we will see an increasing trend on the tax rate.

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Prakash Agarwal, Axis Capital Limited, Research Division - Executive Director of Pharmaceuticals [100]

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Understood. And sir, the last one in terms of life of the generic supply opportunity that we spoke about. So are we stating that how long is this supply for? I mean in the past, we said couple of quarters. So do we see a couple of more quarters for this?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [101]

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On the call earlier I did mention this is the last supply.

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

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Okay. I missed that.

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Operator [103]

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

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Sourav Patra;Edelweiss Broking Ltd.;Equity Advisor, [104]

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Sir, I just wanted a view on, you have entered into the China market. So what's your view on the China market?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [105]

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Maybe Kirti can respond because he used to look after this and from next quarter Kal would respond.

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Sourav Patra;Edelweiss Broking Ltd.;Equity Advisor, [106]

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Can you throw some light on the China agreement market, which you have entered?

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [107]

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China we have entered into 2 agreements with a partner called CMS, one is for tildrakizumab and one is CEQUA.

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Sourav Patra;Edelweiss Broking Ltd.;Equity Advisor, [108]

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Okay.

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Kirti Wardhaman Ganorkar, Sun Pharmaceutical Industries Limited - Executive VP & Head of Global Business Development Team [109]

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As we see China is a big opportunity, it's the #2 market in the world after U.S. and we see lot of growth opportunities for both innovative portfolio as well as generic portfolio.

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Sourav Patra;Edelweiss Broking Ltd.;Equity Advisor, [110]

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Okay. Yes, sir, and another second question is the margin, your margin is setting up ratio, so can you throw lights on the margin?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [111]

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What is the question?

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Sourav Patra;Edelweiss Broking Ltd.;Equity Advisor, [112]

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Margin? On the gross margin?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [113]

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You're talking overall margins?

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Sourav Patra;Edelweiss Broking Ltd.;Equity Advisor, [114]

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Yes, yes, yes.

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [115]

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So you're talking about gross margin?

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Sourav Patra;Edelweiss Broking Ltd.;Equity Advisor, [116]

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Yes, yes.

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [117]

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So we did explain in the previous question that the gross margin for the current quarter is due to the product mix across the business segments and also due to the India distribution transition happened in the last quarter. So these are the 2 major drivers for the -- what you see in the gross profit in the current quarter.

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Operator [118]

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The next question is from the line of Manish Jain from GormalOne.

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Manish Jain;GormalOne;Founder, [119]

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Yes, Dilip. I just wanted to understand on the early-stage innovation pipeline that we're building, what are the focus areas for us in this initiative?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [120]

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So I think product and share the Phase I data. At that time I think we will disclose. As on today we're not sharing. Only thing is that since a certain amount of R&D spend is going to be around this, it was important for us to share at this time. I mean only thing that I can say is that the early preclinical data indicates extremely what I would call powerful results that we -- when we compare it with the products in the market.

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Manish Jain;GormalOne;Founder, [121]

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All right, we'll wait for the next quarter then.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [122]

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I don't know next quarter. In a subsequent quarter.

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Operator [123]

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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 [124]

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Just first one is this a data point on this out-licensing in China. Is that booked in 1Q, made to say it looks like 10 million plus kind of number?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [125]

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No.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [126]

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Actually it's a upfront payment, right. Murali can explain.

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [127]

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So this is a up-front payment as per the Indian accounting standards, it's deferred revenues as in the balance sheet.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [128]

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Okay. So there is nothing on the P&L, just to clarify?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [129]

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Yes, yes.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [130]

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My second question is on Skyrizi again, just taking off from some of the previous participants, I think one of the comments that AbbVie had made on their call was that just to going to Dilip bhai's point as well that 20% of their switches have come from Humira, but 80% have come from other biologics. So maybe Stelara, Cosentyx. So are you seeing the same kind of trend in your numbers for ILUMYA?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [131]

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Yes, Abhay, maybe you can respond.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [132]

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No, clearly no. If you see the trending of market share of all the biologics in the market, you'll be able to see that some of the older ones are declining in share, whereas IL-23s have not declined after the entry of Skyrizi. But having said that, I mean Skyrizi is only a couple of months in the market now. And we clearly respect them as a strong competitor who will do well.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [133]

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Got it. Just link to this, their guidance of $250 million next year, is that like positive overall for the entire like IL-23 franchise, you think? Because those numbers are very impressive, $48 million first quarter sales.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [134]

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I mean if you have a large competitor with experience of the psoriasis market in the fray, you would expect them to also invest into growing the market. So not just taking share from existing players. So I would really hope that some of the large players also use their resources to grow the market because clearly IL-23 as a plus is a better treatment option in my view for patients of psoriasis. So I hope, and we think that the market will grow.

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Shyam Srinivasan, Goldman Sachs Group Inc., Research Division - Equity Analyst [135]

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Got it. Last question is on Odomzo. I think in the initial remarks, market share gains is something that was indicated, I remember last quarter you said 10.5% market share, so what are the efforts that you've done and where are we now on the market share?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [136]

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The market share is 12% roughly now, 12.2% or something is the last number I saw. And I think the effort is to have more number of doctors use the product both in the oncology space as well as we have redefined the targets for derms and how we cover them. It's a rare disease. So being at the right place at the right time is always going to be a challenge and within that we try and navigate and see how do we target the derm customers in such a way that we're maybe as close to the point of prescription as we possibly can be. It's a challenge. But it's a business challenge that we have.

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Operator [137]

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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 [138]

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Sir, just wanted to have a sense on the DTC and EP effort. So whether the peak, say I was believing that okay, there would be a kind of escalation in the cost in the current fiscal compared to the initial cost what we have seen in the fourth quarter. And simultaneously in the opening remark, you've mentioned about some cost containing measures in the U.S. generics side. So given these 2 things, how should one really look at the SG&A number excluding the R&D?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [139]

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So normally we don't give any guidance specific on any expense line item like SG&A.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [140]

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No, it is not specific number guidance that I wanted, but I just wanted to have a sense that okay, whether the DTC and EPA expenses, we have already seen the peak of that. We may not see any further escalation there. And what kind of cost containing measures that you're talking about for the U.S. generic if you can share something more on that?

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

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Well, as I said, I mean...

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

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We have an annual budget in our minds of what we want to spend on DTC. And earlier on the call I did explain that it is a little bit of a pulse in terms of how we spend it depending on seasonality and availability of patients during certain seasons, which may not match exactly to the financial quarters, but you will have 3-month of a high and a little bit lower side on the next 3 months and again going up the third and coming down in the fourth. Doesn't exactly match to our quarters, I repeated that.

Talking about SG&A of generics, that is not a large number. So I think the cost saving is not manufacturing and the projects we take on in R&D that was being referred to, not SG&A.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [143]

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Okay, okay. And just on a small clarification about the NDA pipeline, what you have mentioned in your press release, so -- where it is mentioned that the pipeline includes 52 approved NDAs. So may I know how many NDAs out of the 52 are really marketed or is this entire 52 still to be marketed?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [144]

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We can't give detailed answer on the phone for the conference call. I think Nimish can give subsequent details.

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Operator [145]

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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 [146]

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Sir on ILUMYA, is there any decision on the initiation of the additional indication trials?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [147]

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I think we have indicated that we will be looking at initiating the psoriatic arthritis study.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [148]

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And sir...

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [149]

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We are finalizing the protocol for the Phase III study.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [150]

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And sir, what could be the duration for the study?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [151]

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I mean whatever I think is the regulatory requirement. We'll try and do it as fast as we can.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [152]

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And sir, while it's early days, typically in the IL-23 what's your experience been? Is psoriasis the primary indication, and these are add-on indications or they are eventually going to develop as equally important indications or additional indications?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [153]

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It has both effects. I mean A, to the fact that your product works in more than one condition increases the confidence level of the doctors to prescribe more. And also I mean psoriatic arthritis is a very prominent and important indication. I am not able to quantify whether that is more or psoriasis is more, but it will become a strong indication anyways.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [154]

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Psoriasis is clearly bigger.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [155]

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Bigger.

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

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But some of the patients migrate to having arthritic conditions. But I think if you see Allergan, they are developing this product for gastric indications. I think you see as well as for Crohn's. So those are also equally large markets.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [157]

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Right. And sir, last one, on the ROW market there has been pretty strong growth in the quarter, you've mentioned combination of inorganic as well as organic. So is inorganic a very large component of this Y-o-Y growth number there?

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

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Both of them have contributed.

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Operator [159]

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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 [160]

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Sir, you have said that the revenue from specialty has been about $94 million, and I'd assume that in Q1 FY '19 we would hardly have any revenue from specialty, if I adjusted for this and the total USA, the generic set looks to be a bit maybe lower and that is despite the fact that you have one large order, which is unlikely to repeat. So am I missing something or why is it sliding? What is the reason for this steep decline?

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [161]

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So the specialty revenue what was disclosed in the readout is global specialty revenues.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [162]

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Okay. So...

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [163]

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So not specific to U.S., so you cannot typically apply it in deriving the U.S. scheduled revenues.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [164]

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I understand, but I would still assume that a large part of it will be from U.S. also, or is that also a wrong assumption?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [165]

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As of now, the generic business is a bigger component of our business in the U.S., that is clear. The specialty...

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [166]

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What we are saying is once you take out the special business, then your generic business is much smaller than what you thought it should be.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [167]

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So I think once you start...

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

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With so many dimensions, it's difficult for us to -- because I think what we work towards is to try and give you a consolidated growth number for the whole business. And I understand that you need to kind of develop a better understanding than what we're sharing, but we will not be giving more detailed business-by-business information.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [169]

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Okay. I'm actually not asking for any numbers, but okay. So if you can just tell me whether my observation of the steep decline is right or wrong?

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

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Yes, it's wrong.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [171]

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Sorry?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [172]

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It's wrong.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [173]

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It's wrong, okay, fine. And second thing I just wanted to know that in the generic business again I saw that we have many products where you received approval for launch, some of these are from Taro as well, so any reason? And some of them at least I feel are low competition products.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [174]

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Market dynamics, it may not be...

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [175]

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There are many products where we don't have enough competition and fewer key players that kind of competition even that has not been launched?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [176]

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It's difficult to respond. Generally, if you have an approval, and if it's a profitable product, we will launch it.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [177]

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Sir, as of now there is no product which is to be launched, I mean...

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [178]

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There definitely are 1 or 2 products, which we're in the process of scaling up because the original batch sizes that we would have filed would be very small. And we're scaling to a much bigger batch size, so that we can make what is commercially required, but other than that I don't see any product.

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Nimish Nagindas Mehta, Research Delta Advisors, Research Division - Research Analyst [179]

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Okay. Last, if I may, just wanted the number of doctors prescribing ILUMYA now. You mentioned last time it was 1,200 doctors, so any number that will be helpful.

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

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Now we're giving you the specialty business numbers. So I don't think...

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Operator [181]

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The next question is from the line of Harith Ahamed from Spark Capital.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [182]

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You mentioned in your press release that the strong growth that you've seen in the ROW business of 56% was partly driven by the acquisition of Pola Pharma in Japan. And based on your annual report, this business accounted for -- had revenues of around INR 770 crores for the previous 12 months. In this context, the purchase price consideration of INR 23 crores seems a bit low. So can you help understand the low valuation multiples for which you are able to acquire this business?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [183]

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It's an old one. Now, are you happy, unhappy? I don't know.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [184]

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Whether it's on price to sales or price to earnings, the multiple...

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [185]

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I think every transaction has its own idiosyncrasy and reasons. And for business reasons, we may not be able to share all the issues beyond what we have shared.

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Operator [186]

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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 [187]

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Abhay, what is more difficult, is it to get the patient first on your early access program for ILUMYA? Or to then subsequently convert from early access to commercial plans? And second is what does it take to convert from EAP to commercial plan in terms of hurdles or the burden that the peers have kept there?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [188]

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You give me a devil and deep-sea option, and you are asking which one is easier. I mean both are different challenges. The first one, obviously, is to convince a doctor about the efficacy and merits of your drug and initiate a trial or usage. And the second is dealing with a completely different customer group and trying to convince the payer that it is worthwhile for the payer to pay for the drug in the long-term interest and benefit of the patient. So both are very different customer groups. So for me to compare will not be -- I mean I don't know how to compare and give you any kind of comparator here or what is easier.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [189]

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I think for Sameer's understanding it's easier for him to understand, but even though converting it may be difficult to a paying patient. Are you actively encouraging as many new prescriptions as possible?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [190]

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We are, clearly.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [191]

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That gives the answer to Sameer.

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [192]

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Because Sameer, that clearly gives doctors the experience with our product. And our experience is that doctors who use the products and have used it repeatedly are very happy with the performance of the product. And therefore, we actively encourage, let's say early access program. And then, of course, the job of the access teams is to try and convert the access patients into a paying patient.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [193]

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And how difficult is this, Abhay? If I may, unless early days, and what could be the conversion percentage if there is some ballpark over there?

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Abhay Gandhi, Sun Pharmaceutical Industries Limited - CEO of North America Business [194]

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I mean I cannot give you an exact percentage obviously for competitive reasons but as far as my understanding is concerned, we seem to be fairing within the industry norms.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [195]

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Within the industry norms.

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Operator [196]

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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 [197]

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2, 3 clarifications. The interest cost declined very sharply in this quarter. Can you help with that? So we were doing run rate of INR 145 crores to INR 150 crores in the last 2 quarters, now we're down to INR 105 crores.

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [198]

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So the interest cost in current quarter has dropped because we have reduced our rupee borrowings significantly in this quarter. So our overall cost of capital and overall our debt has dropped in this current quarter, which has resulted in a combination of the resultant savings from the finance cost.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [199]

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Can you give what is the gross debt or net debt that you have right now?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [200]

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So it's lower than what you see in the annual report. However, you will get the gross and net debt end of next quarter.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [201]

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So is it more of a refinancing rupee borrowing with dollar debt that has reduced? Or large part of the saving has come because the debt has gone down?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [202]

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Mostly it is because the debt has gone down.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [203]

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Very sharp, right. Okay. Second..

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [204]

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Are you happy, unhappy? (inaudible)

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [205]

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No, sir, happy, but this is like very sharp reduction in one quarter, that's the only question I was asking.

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [206]

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If you reduce INR 300 crores of let's say Indian debt, then that will give you significant reduction and the debt reduction may be higher than that. So I think it reflects -- it's not that the interest is deferred, it's the actual interest cost.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [207]

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Okay. And with this Ind AS 116 changes, the total impact on PBT is low, but what's like is the impact to EBITDA was very low?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [208]

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I'll let Murali answer.

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C. S. Muralidharan, Sun Pharmaceutical Industries Limited - CFO [209]

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The impact to EBITDA also is very low.

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Anubhav Aggarwal, Crédit Suisse AG, Research Division - Associate [210]

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Very low. Okay. And Dilip bhai, just last question there. This U.S. one-off sales that you were doing, this doesn't get reflected in IMS just that because it doesn't get routed through the distributors, we just directly sell to one third party, we do not sell to channel participants, is that's the reason?

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Dilip Shantilal Shanghvi, Sun Pharmaceutical Industries Limited - MD & Executive Director [211]

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Yes. That is correct.

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Operator [212]

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Thank you. 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 [213]

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So thank you, everybody for taking time out for this call. If any of your questions have remained unanswered, do send them across, and we'll get them answered. Thank you and have a good day.

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Operator [214]

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Thank you. Ladies and gentlemen on behalf of Sun Pharma, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.