Dr Reddy’s Laboratories (NYSE:RDY) reported second-quarter financial results on Friday. The transcript from the company’s second-quarter earnings call has been provided below.
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Summary
Dr Reddy’s Laboratories Ltd reported a 1.5% year-over-year revenue decline for Q2 FY27, affected mainly by lower lenalidomide sales, though underlying base business showed double-digit growth.
The company achieved an EBITDA margin of 20.6%, supported by strong execution in core businesses and productivity improvements. Gross profit margin was 52.1%, with an improvement from the previous quarter.
Strategic initiatives include the expected relaunch of semaglutide in November 2026, expansion of partnerships with Takeda and Gilead Sciences, and various new product launches in North America, India, and emerging markets.
Dr Reddy’s highlighted a significant focus on biosimilars, with products like rituximab and abatacept advancing through regulatory processes. The CDMO business recorded revenues over $100 million in the last 12 months.
Future outlook includes continued double-digit growth, sustainable profitability, and a focus on new launches and operational efficiencies. The company aims to maintain EBITDA margins above 20%, targeting 25% in the long term.
Full Transcript
OPERATOR
It’s now on mute.
Aishwarya Sitaram (Head of Investor Relations)
Good day everyone and welcome to quarter two FY27 earnings call of Dr Reddy’s Laboratories Ltd. We appreciate your continued interest in our company. I’m Aishwarya Sitaram, Head of Investor Relations at Dr Reddy’s. Joining us today are members of the leadership team, Mr. Erez Israeli, our Chief Executive Officer, and Mr. M. V. Narasimham, we call him VN, our Chief Financial Officer. Our quarterly financial results have been published earlier today and are available on our website.
For your reference, we will start today’s call with MVN providing an overview of our financial performance for the quarter. Following that, Erez will share his insights on key business highlights as well as the company’s strategic outlook. We will then open the floor for questions. All commentary and analysis during this call are based on our IFRS consolidated financial statements. Please note that certain non-GAAP financial measures may also be discussed. Reconciliations to the corresponding GAAP measures are included in our press release. I would like to remind everyone that the safe harbor provisions outlined in today’s press release apply to all forward-looking statements made during this call.
Before we proceed, I would like to call out a few housekeeping points. All participants will be in the listen-only mode during the opening remarks. Should you need any technical assistance during the call, please use the chat function on your Zoom application. The chat will not be monitored for any questions to the management. This session is being recorded and both the audio and the transcript will be made available on our website. Please note that this call is the proprietary material of Dr Reddy’s Laboratories Ltd. and may not be rebroadcast or quoted in any media or public forum without prior written consent from the company.
With that, let me hand the call over to MVN to present the financial highlights for the quarter. Over to you, MVN.
M V Narasimham (Chief Financial Officer)
Thank you, Aishwarya. Greetings everyone and thank you for being with us today. It is my pleasure to take you through our financial performance for the second quarter of FY27. The business reported a 1.5% year-over-year decline in revenue while EBITDA margin was at 20.6% for the quarter. Excluding lenalidomide in North America, the underlying base business maintained its growth momentum, delivering double-digit growth. All financial figures in this section are translated into US dollars using a convenience translation rate of rupees 95.83, the exchange rate prevailing as of 09-30-2026.
Consolidated revenue stood at rupees 8,671 crores, which is US dollars 95 million, a decline of 1.5% year over year and a growth of 7.4% on a sequential basis. Strong underlying base business performance across key businesses except Europe and PSAI, driven by new product launches and favorable forex movements, helped mitigate the impact of lower lenalidomide sales. Consolidated gross profit margin was at 52.1%, an increase of 562 basis points sequentially and a decrease of 254 basis points year over year.
The year-over-year decline in margins during the quarter was largely on account of lower lenalidomide sales. As a reminder, margins in the preceding quarter were adversely impacted by a provision for inventory and other costs associated with the semaglutide API-related challenges. The reported gross margin for Q2 FY27 was 56.2% for Global Generics and 11.8% for PSAI. The SG&A spend was at 2,808 crores, an increase of 6% year over year and a decline of 3% sequentially, accounting for 32% of revenue. The year-over-year increase was primarily driven by higher personnel costs following annual increments, adverse forex movement as well as elevated freight cost due to supply chain disruptions arising from the Middle East crisis. The R&D spend was at rupees 524 crores, down by 16% year over year and 9% sequentially, accounting for 6% of revenues and primarily reflecting lower development expenditure in generics as compared to the previous year.
The EBITDA including other income stood at rupees 17.83 crores, which is US 186 million, a decrease of 6.14 basis points year over year and an increase of 806 basis points sequentially, reflecting a margin of 20.6% of the revenues for the quarter. The profit before tax was at rupees 1,228 crores, that is US dollars 128 million, representing a margin of 14.2%. Effective tax rate for the quarter was at 25.6% compared to 22.2% in the corresponding period last year.
The ETR for the quarter was higher primarily due to an adverse jurisdictional mix for the quarter in comparison to the same period in the previous year. Profit after tax attributable to equity holders of the parent for the quarter stood at rupees 925 crores, which is million, a margin of 10.7% on revenues. Diluted EPS for the quarter is rupees 11.1. Operating working capital as of 30th September 2026 was 14,650 crores, which is 1.53 billion US dollars, an increase of rupees 297 crores over 30th June 2026. Cash capex cash outflow for the quarter stood at rupees one hundred and eighty six crores, which is US dollar nineteen million. Cash flow during the quarter was one hundred and seventy one crores, which is eighteen million. As of 30th September we have a net cash surplus of 2,502 crores, which is US dollar 261 million.
Foreign currency cash flow hedges executed through derivative instruments during the period are US$229 million, hedged using a combination of forwards and risk reversal options scheduled to mature by March 2027. These contracts are hedged at a rate of 93.03 to 95.54 per US dollar. With this I now request Erez to take us through the key business highlights.
Erez Israeli (Chief Executive Officer)
Thank you, good day and thank you for your continued interest in our company. Apologize for my voice, I hope it will stay consistent. We remain consistent in our strategic priorities of delivering double-digit growth across geographies and sustainable profitability through strong execution in our core businesses, progress on key assets, continuous productivity improvement and disciplined investment in future growth drivers, both organic as well as inorganic.
During the quarter, the underlying business, that is excluding lenalidomide in North America, continued to perform well, delivering a double-digit growth overall as well as across North America, Emerging Markets and India. We achieved an EBITDA margin of 20.6% supported by the strength of our base business and our continued efforts to drive productivity. Subject to successful validation, we expect to relaunch semaglutide both directly as well as to our partners in November 2026, consistent with the timelines communicated earlier.
We also remain focused on advancing abatacept and other complex generics as they move through the regulatory review process in the coming quarters. Let me now walk you through some of the key highlights of the quarter. We partner with Takeda to bring India’s first approved dengue vaccine, called QDENGA, to the private markets in India in the first half of 2027. We expand our collaboration with Gilead Sciences to enable access to investigational once-yearly lenacapavir for HIV prevention in 120 countries. In collaboration with the GARP Foundation, we secured approval for zoliflodacin, an antibiotic used in gonorrhea treatment, in Thailand.
Within six months of USFDA approval, we received USFDA approval for rituximab biosimilar which will be commercialized in the US through our partners, Fresenius Kabi. We launched nivolumab in India, marking our entry to biosimilar immuno-oncology in India. Both rituximab and nivolumab are developed and manufactured in-house. Generic semaglutide is now approved in 10 countries across Latin America, Africa, the Middle East, as well as Canada and India.
Our CDMO business under Aurigene Pharmaceutical Services generated revenues over $100 million in the last 12 months. We continue to receive global recognition for commitment to sustainability. FinanceAsia awards a Silver Medal in the Best Large Cap Company in India category as Asia’s Best Companies 2026, reflecting strong endorsement by the Asian investor and analyst community, we improve our CRISIL ESG score to 73 out of 100 from 66, becoming the only pharmaceutical company in the Leadership category.
Let me take you through the key business highlights for the quarter. Please note that all financial figures mentioned are reported in the respective local currencies. Our North America Generics business reported revenue of $264 million for the quarter, accounting for 29% of our overall revenues and reflecting a decline of 29% year on year and a growth of 12% sequentially. The decline is attributed to lenalidomide sales versus last year. The underlying base business, excluding lenalidomide, continued to deliver strong double-digit growth driven by new product launches.
During the quarter we launched six new products including first-to-market launch of sugammadex injection. We remain on track to launch additional products, including complex injectables, during the year. Our branded franchise comprising India, Emerging Markets, and consumer health business in nicotine replacement therapy, or NRT, together accounted for 53% of overall revenue and continue to provide a strong foundation for stable margin for the company. Our Emerging Markets business recorded revenue of 2,059 crore rupees, accounting for 24% of our overall revenue and reflecting a robust growth of 24% year over year and 12% year on year. New product launches across markets including acquisition, coupled with favorable currency movement, drove growth during the quarter.
We introduced 27 new products across countries in Q2 FY27. Our India business revenues were 1,851 crore, accounting for 21% of overall revenues and consistently delivering a robust double-digit year-on-year growth of 17% and 8% sequentially. Growth was driven by recent launches including acquired brands, along with price increases and higher volumes. According to IQVIA September 2026 data, our IPM rank improved to 8 for the quarter and 9 for the year. We continue to outperform the Indian Pharmaceutical Market (IPM) with moving quarterly total growth of 21% versus 14.7% for IPM and moving annual total (MAT) growth of 19.4% versus 13.2% for the market.
Four of our brands feature in IPM top 50 new launches and we launched four new brands during the quarter. Our European business, which includes NRT, posted revenue of 127 million euros for the quarter, accounting for 16% of our overall revenues. Revenues declined 6% year over year and 3% sequentially on account of price erosion in generics, partially offset by revenues from new product launches. Growth was further affected by the continued impact of the operating model changes post NRT integration, as highlighted last quarter. During the quarter we launched six new generic products across markets.
Our PSAI business reported revenue of $88 million, accounting for 10% of the overall revenues, a decline of 19% year over year and 3% sequentially, primarily on account of lower API volume uptake. Our CDMO business delivered double-digit growth this quarter. During the quarter we filed 28 drug master files globally. We remain committed to improving the health of our business and to delivering consistent growth and sustainable margins. As we continue to strengthen our core business, we are also investing in future growth drivers across peptides, biosimilars, consumer health and innovation. Our focus remains on progressing key products such as semaglutide and abatacept, driving operational efficiency and pursuing targeted inorganic opportunities to support long-term growth and shareholder value.
With that, I invite your questions as we move into the Q&A session.
Aishwarya Sitaram (Head of Investor Relations)
Thank you very much, Erez. We will now begin the question and answer session. To join the question queue, use the Raise Hand option available at the bottom of your Zoom application. If you wish to exit the question queue, you may click on the Lower Hand option. Participants are requested not to ask more
OPERATOR
than two questions at a time and to rejoin the queue in case of any incremental queries. I would like to reiterate that the chat will not be monitored for any questions to the management. However, in case of any technical concerns, please do feel free to use the chat option to reach out to us. The first question is from the line of Neha Vanpuria from Bank of America. Neha, please go ahead.
Neha Vanpuria (Analyst)
Yeah, hi, thanks for taking my question. My first question is on SEMA. I think you mentioned that we are on track to resume SEMA in early November. I think you had given us, you know, a volume guidance last time when we announced the disruption in supplies. Two questions on SEMA. First, is the resumption happening with our own API? Is it, you know, is it the same partner that we’re using? And second, you know, given what has happened in Canada, you know, with the one player which is already there, how confident are we of meeting the guidance that we’d, you know, given for SEMA?
Erez Israeli (Chief Executive Officer)
So I’m very confident and the confidence is based on orders that we already have and we just obviously need to supply. The main issue was with our ability to scale up the API. This problem is solved and we shipped all the necessary API to our partner to do. We still need to have the results of the validation. So this is still pending, but I’m confident that it will be successful and then we are ready to launch. Most of the quantities will go to Canada and some of the quantities will go to Latin America, primarily to Latin America and a little bit to Africa.
Neha Vanpuria (Analyst)
Understood. And my second question is on the gross margin improvement that we’ve seen in the quarter. If you could give us some color in terms of what’s driving this gross margin improvement and is it fair to assume that as SEMA comes through, you know, this is the bottom in terms of gross margin and gross margin should only improve from here?
M V Narasimham (Chief Financial Officer)
Yeah, as we guided earlier, we want the gross margin in the range 50 to 55. That’s why this quarter what we see, 52.1. This improvement from last quarter to even this quarter is a combination of the new products and business mix. That’s where I think we will be in this zone certainly in the coming four quarters as well. And your assumption is correct. Yes, it will only get better from here.
Neha Vanpuria (Analyst)
Yeah, understood. Thank you so much.
OPERATOR
Thanks, Neha. The next question is from the line of Dr. Kunal Danesha from Aquari. Kunal, please go ahead.
Kunal Danesha (Analyst)
Hey. Hi. Thank you for taking my question. First one on the cash flow line item on other assets and liabilities. There is a large change that has happened around 1,370 crore. So, MVN, could you please help us what is driving that?
M V Narasimham (Chief Financial Officer)
So this is the one where this SSA claim what we had, I think the payments have happened this quarter. That is one change and then other balances due to various operations. But that is the biggest one. If you remember, $50 million what we have provided in the Q4.
Kunal Danesha (Analyst)
Okay, okay. During this H1. Okay, so the cash flow has happened now. Okay, yeah, great, thank you. And, you know, just continuing on the gross margin front, or the other way to look at it is there’s a sequential improvement in US revenue, a meaningful improvement, right. So would you be able to split between the new product launches driving that and the volume improvement in existing product or pricing improvement? How should we think of the delta in US business and the similar driver and approximate split for the gross margin improvement on a QOQ basis?
M V Narasimham (Chief Financial Officer)
So certainly, like new products what we have launched in SugarMax, I think in the US these products as compared to the our company average gross margins certainly are on the higher side, as well as what we have launched, the newly MAP and GST. The business mix also is a contributor to this margin.
Erez Israeli (Chief Executive Officer)
So, Kunal, the main driver is actually the business mix because now the businesses that are relatively with high profitability, meaning India, EM and the NRT, all of them are much more profitable than our average, which went to 53%. So this is one contribution. The second is what MVN said, that the US is more profitable because of the contribution of the new product. The combination of both gave that, and the last, we did not increase the expenses.
Expenses are essentially flat this quarter. And so if you grow the sales double digit and you don’t increase the cost, it obviously leads to this margin improvement.
Kunal Danesha (Analyst)
Sure. And lastly from my side, would we have also seen, you know, some drag from the raw material price increase, and you know, given the, you know, I think the oil prices are high and, you know, the chemical prices are also high. And then how should we look at that, you know, cost line item from the, you know, let’s say second half perspective. Do you think that quarter two is when we have seen most of the increase or quarter three, quarter four we can see some drag?
M V Narasimham (Chief Financial Officer)
So here, just I think this is because of the increases what we have seen in the KSMs, and then the second one is solvents, and the third is logistics freight outwards when we are exporting material from India to all other countries. So we have seen the increase on the three fronts, and then overall it has an impact close to 100 basis points on the EBITDA. So we believe that is already part of the gross margins. And then we believe this trend will continue for Q3 and Q4 as well.
Erez Israeli (Chief Executive Officer)
I don’t anticipate additional growth unless, of course, there will be, you know, as much as we can predict, additional geopolitical issues. But with our limited understanding, if it will stay the way it is now, we are in the same today.
Kunal Danesha (Analyst)
Sure. I have more questions. I’ll join back the queue. Thank you and all the best.
OPERATOR
Thank you. Thanks. The next question is from the line of Damanti Kai from HSBC. Dam, please go ahead.
Damayanti Pai (Analyst)
Yeah. Hi, good evening everyone. It is a clarification on semaglutide resumption. So you mentioned you have already started supply of API to your fill-and-finish partner. However, what is remaining is the validation. So I actually am not clear. I thought validation will be done and then you will supply to your fill-and-finish partner. So can you just help us understand this?
Erez Israeli (Chief Executive Officer)
Sure. So you do validation as we had to come back and basically tweak the process on the API. Then you do validation of the API, and then when you ship it to our partner, then you need now to do validation on the drug product using that API. This is a process that takes about three weeks and so far, give or take, all the activities are on time and that’s why it took us to November from the first place. So, so far it is on track, but you have basically validation in each stage of the scale-up of the process.
Damayanti Pai (Analyst)
Sure, that’s helpful. And other point on semaglutide, you mentioned so far it’s approved in around 10 countries. So didn’t you secure more approvals in other markets while you were trying to resolve the API issue or you want to go after after you resume the supplies in the existing or approved market? So how do you plan? Because you mentioned you’ll be targeting to launch in more than 70 countries across the world, right?
Erez Israeli (Chief Executive Officer)
Yeah, the right number is now 89 markets. But it’s just that all the markets that the process started, we did not stop. The scale-up issue has nothing to do with the regulatory process and we don’t require any amendment to the file or anything like that. So everything continued and all the approvals we got were according to the process in each one of those respective countries. And this will continue. Some of the approvals in some other markets got delayed because of the scale-up as we needed to ship them samples of the products, and those samples will be now sent to these places.
So we will continue with the process for all the other markets as well.
Damayanti Pai (Analyst)
Sure. And my second question is on your NRT, the nicotine business. So flat performance for last two quarters and you mentioned it was due to change in the business model. So when should we see recovery in NRT business?
Erez Israeli (Chief Executive Officer)
So last quarter, if you recall, we had to carve out from Haleon. So it means that Haleon used to do it and we gave them certain margins for handling the business. The new business model means that now we are selling it either by ourselves or through distributors. But the payment through is not there anymore. It means normally in this respect less sales but more profit. So what I can say about it, the comparison year over year will be until we will finish the year.
I think we have two more quarters like that. In general, the business is doing well. It will grow in the same way that you saw until now, somewhere between a high single digit to maybe even double digit. And the profitability is way above the expectations that we put in the business model. So we are very, very pleased with this one.
Damayanti Pai (Analyst)
Sure. Thank you. I’ll get back in the queue for more questions.
OPERATOR
Thanks. Damayanti, the next question is from the line of Tossive Sheikh from BNP Paribas. Tossive, please go ahead.
Tossive Sheikh (Analyst at BNP Paribas)
Good evening and thanks for the opportunity. First question about accept. While the goal date is set for December, is there any incremental update that you would like to share with us especially for the virtual from the Bachupally plant?
Erez Israeli (Chief Executive Officer)
Yeah, so the plant went for the inspection. We’re still waiting for the EIR to come and the goal date is indeed December 22nd and we are hoping for an approval. It’s obviously in the end of the US FDA.
Tossive Sheikh (Analyst at BNP Paribas)
Okay, that’s helpful. On the R&D spend which seems lower compared to YoY and QoQ, while you have mentioned it is on account of lower spend on global generics, how do you see this trend going ahead? Shall we assume this is a new base now?
M V Narasimham (Chief Financial Officer)
So this quarter R&D is low. Absolutely, you’re right. And then coming quarters what we believe our R&D is going to be in the range of 7 to 8%.
Tossive Sheikh (Analyst at BNP Paribas)
Okay, that’s helpful. I will get back in the queue.
OPERATOR
Thanks. The next question is from the line of Madhav Marda from Millennium. Madhav, please go ahead.
Madhav Marda (Analyst)
Hi, good evening. Just one question. If I understood right during the initial remarks you mentioned about like one or few complex injectable launches in the second half of the year. Could you just clarify, like if you could share some more views on that product. Do I hear that right that we have some complex injectable lineup?
Erez Israeli (Chief Executive Officer)
Well, we’ll talk about it more when we get closer towards the end of the year. But yeah, we do have a few interesting products in our pipeline. We’ve always spoken about that. We’ve done a bunch of launches. We want to continue over that momentum. Yeah, but I’m kind of careful to promise because, you know, I got burned in the past when dealing with the approval of complex generics. Some of you have been with us for many, many years and you remember that. But let’s say we have some exciting products ahead.
Madhav Marda (Analyst)
Remember in 2022 we’d done the analyst meet in Bombay. I think that time we had shared names of a few products. Is it from that list itself, like you disclosed four or five products?
Erez Israeli (Chief Executive Officer)
in the pipeline, you will know by the end of the year.
Madhav Marda (Analyst)
Okay, okay, fine. But it’s a meaningful product for the US market. Is that right?
Erez Israeli (Chief Executive Officer)
These are meaningful products. Yes.
Madhav Marda (Analyst)
Okay, got it. All right, thank you.
OPERATOR
Thanks, Madhav. The next question is from the line of Forum Parikh from Bank of Baroda Capital. Please go ahead.
Forum Parikh (Analyst at Bank of Baroda Capital)
Thank you for the opportunity. My first question is on Europe business ex of NRT. So the growth seems to be declining there, probably because of Germany. So how should we look at it? I mean NRT is also now flattish because of the change in business model. And ex of NRT also it’s declining, which is taking a toll on the Europe business. So can we expect it to go back to double digit?
Erez Israeli (Chief Executive Officer)
Yeah, it will. First of all, the NRT will grow. The NRT is growing and obviously that part will positively impact also the relevant part of Europe. Absolutely. You are correct about the performance of this quarter. The next quarter should be better. Let’s say the energy I’m expecting again either a high single-digit growth or even double, depends on certain scenarios. As for Europe, I’m expecting growth, but it will not be significant growth this year.
Ex-NRT Europe, you mean? Yes, it should grow probably single digit itself.
M V Narasimham (Chief Financial Officer)
Yeah. So overall, just want to clarify, our SG&A percentage is 32%. And just as you know here, we’ve also spoken the cost productivity. What we are doing is now that is becoming visible. So even in coming quarters also, at least in this year coming, you may not see significant changes to this number. It is going to be at this level around here and there. I think small changes.
Erez Israeli (Chief Executive Officer)
I just want to reiterate, to take the opportunity. We believe that the level that we agree and we discuss it all the time actually with all of you is sustainable. We think that the 20-plus — we are actually aiming for the famous 25% that we are always discussing — and this will continue, and we are planning to consistently continue to deliver of this number. It’s going obviously to stay a high level of double digit. It may be a little bit less or a little bit more, but we are in the right neighborhood. Also we want our growth to be higher than the market growth by a few basis points.
OPERATOR
Thanks. Forum participants are requested to restrict the number of questions to two to ensure that everyone in the queue gets an opportunity to interact with management. The next question is from the line of Prakhar Neymar, who’s from BNY Mellon. Prakhar, please go ahead.
Prakhar Neymar (Analyst)
Firstly, thanks for taking these questions. So what is the company’s strategy for expanding the biosimilar business within research and development and partnership? Could you please share some light on this?
Erez Israeli (Chief Executive Officer)
Sure. We are going after both. So we will naturally leverage our Bachupally facilities as well as additional facilities that we build in the future. And Abatacept is going to be the first meaningful product to be launched out of our own facilities. Rituximab is obviously one of them. Abatacept is going to be meaningful and more products to follow. In parallel to that we are talking to partners around the world and we are trying to license products in which we don’t have in our own internal pipelines, whether globally or for specific regions. So both will continue.
Prakhar Neymar (Analyst)
Perfect, thanks. And one more question. What revenue can we expect for the next three to four years?
Erez Israeli (Chief Executive Officer)
It depends on the success of Abatacept obviously in the next coming years because this is going to be a significant product for that. And Abatacept should be in the hundreds. So you should expect hundreds of millions of dollars. So, followed by Abatacept, then we have Pembrolizumab and Daratumumab also will come in the next, within five years.
Prakhar Neymar (Analyst)
Okay. Okay. Thank you so much. Thanks for taking my questions.
OPERATOR
Thanks. The next question is from the line of Abdul Kabir Puranwala from ICICI Securities. Abdul, please go ahead. Abdul, you’ve been unmuted. Just move on. Then I will come back. Abdul, we’ll come back to you. The next question is from the line of Vishal Manchanda from Systematix. Vishal, please go ahead.
Vishal Manchanda (Analyst)
Hi, good evening and thanks for the opportunity. On Rituximab, would it be possible for you to share where we are in terms of market share in Europe?
Erez Israeli (Chief Executive Officer)
We have a single digit of market share in Europe.
Vishal Manchanda (Analyst)
Low single digit or high single digit? Any timelines and any guidance as to where we can be maybe a year or two years down the line, and do we have the capacities there?
Erez Israeli (Chief Executive Officer)
So indeed we were constrained by capacity. We should be better once we will be able to add more qualified capacity for that. And at the same time we’re talking about a product with a high level of competition. So I would not expect a significant change because of that.
Vishal Manchanda (Analyst)
Okay. And second, your JV entity in China got a first generic approval for a drug called Icotinib in July. Is that contribution part of your numbers in the current quarter or will this come in subsequent quarters?
M V Narasimham (Chief Financial Officer)
So we are not recording the sales; we are recording our share of the profit of that. So it’s part of profit, and our share in that is 51%.
Vishal Manchanda (Analyst)
So this would be part of the JV share of profits from JV. So have we kind of started selling this, and have we ramped up to our full potential, and are we the only generic here or are there other generics that—
Erez Israeli (Chief Executive Officer)
To the best of my knowledge, we started. I don’t recall about the competition.
Vishal Manchanda (Analyst)
Okay, and just one final one on Abatacept. Once we get the approval, how long can we take to get listed on the formularies? Will it be like six months or can we start getting market share quickly post approval?
Erez Israeli (Chief Executive Officer)
So the ramp-up, like you said correctly, will be after six months, after we’ll get all the codes and all the registration. But we can initially sell smaller quantities from day one. So expect that the launch will be upon approval, but the ramp-up will be correctly after six months.
Vishal Manchanda (Analyst)
Got it. If I can ask one more on semaglutide, if you can guide on where generics are in terms of market share in Canada as on date?
Erez Israeli (Chief Executive Officer)
As of there, there is only one generic in Canada, right? I don’t remember their market share, but let’s say that the Canadian market will love to get us big.
Vishal Manchanda (Analyst)
Got it. Thank you.
OPERATOR
Thanks, Vishal. The next question is from the line of Surya Patra from PhillipCapital. Surya, please go ahead. Surya, you’ve been unmuted. Okay, while Surya joins back in, the next question can be from the line of Dr. Binu Patiparam Pil from Elara Capital. Please go ahead.
Dr. Binu Patiparam Pil (Analyst at Elara Capital)
Hi, good evening to all of you and congratulations on a great set of numbers. A couple of clarifications: I see from the footnotes this vendor deal and some milestones in Russia which is part of revenue — where is it included in the revenue breakup? Is it part of US revenue and Russia revenue respectively?
M V Narasimham (Chief Financial Officer)
It is in the sales line, and Bendamustine is in the US revenue, and the milestones are in Russia. That milestone of Russia is part of the EM.
Dr. Binu Patiparam Pil (Analyst at Elara Capital)
Okay. Second, what is this Bendamustine deal about? What was the logic behind selling the product rights?
M V Narasimham (Chief Financial Officer)
It’s on licensing. Yeah, that’s where I think here we thought with a partner overall as a deal we get better economics. That’s why we have given these rights to the partner.
Dr. Binu Patiparam Pil (Analyst at Elara Capital)
Got it. In the quarter I see that the finance income is significantly lower — versus 290 crore last quarter and kind of similar numbers in previous quarters, this quarter is only about 90 crore. Is there any reason why the finance income is so much lower?
M V Narasimham (Chief Financial Officer)
So here, with the exposure we have on the balance sheet, the forex — especially the movements, I don’t know — from June to September of the ruble spot rate is, I think, significant variance. I think that has given this P&L debit in this quarter as compared to Q1 — sorry, in this quarter it is lower compared to Q1.
Dr. Binu Patiparam Pil (Analyst at Elara Capital)
Yes, yes, yes. Okay, I’m sorry, one last question: what would be the capex for the full year? Because the first half I have seen is much lower than your typical earlier.
M V Narasimham (Chief Financial Officer)
We have guided around 1,800 crores. My view, it could be a little lower, but definitely I expect around 1,600–1,700.
Dr. Binu Patiparam Pil (Analyst at Elara Capital)
Thank you, I’ll join back with you.
M V Narasimham (Chief Financial Officer)
Yeah, thanks.
OPERATOR
The next question is from the line of Amlan Das from JP Morgan. Amlan, please go ahead.
Amlan Das (Analyst)
Sorry, just wanted one clarification on the Abatacept scenario. So apart from the IV indication, we also heard from the previous calls that for a subcutaneous indication you expect an approval in the US in 4Q FY28 and in the non-US markets for both indications in 1Q FY28. So do the timelines remain consistent, or has there been a change in this?
Erez Israeli (Chief Executive Officer)
Consistent. We stay consistent with it. Yeah.
Amlan Das (Analyst)
Okay, thank you. Thanks for that. And the non-US market is also roughly USD 1 billion for the reference drug. So how do you expect the ramp-up in the non-US markets for you for Abatacept?
Erez Israeli (Chief Executive Officer)
We believe that the European market is a very important market for this. And it’s going to be launched a little bit after the United States. But Europe — we believe is a significant market.
Amlan Das (Analyst)
Okay. And lastly, for these markets the manufacturing would be done in Bachupally itself, right? Okay, thank you. Thanks for the opportunity.
OPERATOR
Thanks, Amlan. The next question is from the line of Dhara Ganatra from UTI Pension Funds. Dhara, please go ahead. Am I audible? Yes, we can hear you.
Dhara Ganatra (Analyst)
Thank you so much for taking my question. So I had one question, largely from the India market perspective. What we have seen in the last two years is that IPM growth has been in high single digits. And in the last six odd months, or last three odd months, what you are seeing is that the growth has accelerated versus the last two years — the growth was more driven by pricing. This time around there’s a lot more volume growth. So both for Dr Reddy’s Laboratories and for the industry, what do you think is changing, and what is the outlook for the second half of the year and going forward?
Erez Israeli (Chief Executive Officer)
One thing that changed significantly is obviously the launch of semaglutide and the GLP-1 product. This is a significant addition both for volumes. The second one is that you have more new products like us, innovative products, that are coming to the market. So in general this is the main contribution. I believe that if you take the GLP-1 you’ll get either close to the single digit or to high — I did not do the math — but this is the main contribution, I believe.
Dhara Ganatra (Analyst)
Okay, so you don’t see any smaller players vacating the market or a slowdown in trade generics or that sort of thing that would be driving the IPM growth?
Erez Israeli (Chief Executive Officer)
I don’t. At least the way I see also that the main growth for us is in the places in which you have those utmost demands. For us it’s primarily the innovation, the branded generic. Those that we are investing behind are doing well. The rest are doing like in the market normally, mostly driven by prices.
Dhara Ganatra (Analyst)
Sure. Thank you.
OPERATOR
Thanks, Dhara. We’re going to try and see if Abdul can join us now. Abdul, can you please unmute yourself? Abdul, you’ve been unmuted. Okay. Looks like there are continued technical issues at his end. The next question will be from the line of Vivek Agarwal from Citi. Vivek, please go ahead.
Vivek Agarwal (Analyst)
Thanks. Thanks, Aishwarya. My question is on — just trying to understand what can be the fair market share of your biosimilar in the US once the product is there across the formularies, even one year down the line, because we have seen in a lot of biosimilars that sometimes the market share remains range bound around 10–15%, and some of the products get market share as high as around 50–60–70. So what is your assessment based on the opportunity itself, competitive dynamics, as well as your capacity and capability — what kind of market share is a fair market share for this product for you?
Erez Israeli (Chief Executive Officer)
No, thank you. And at least at the moment, assuming that we’ll get approval, we are alone. So in terms of competitiveness, it’s us and the innovator. It’s a medical-benefit product in the United States, so the sensitivity to the price and to market share is not as big as in the pharmacy benefit. I know you know that well. So I believe that a fair market share can be any number from 15% to 25%. Depends of course on the success of the launch. We need also to add that once the sub-Q will come to the market, it’s obviously going to add to the market share, which will come later.
We are talking about February 28th. So this is give or take. So it’s primarily about the sweet spot between market share and prices.
Vivek Agarwal (Analyst)
Just a clarification. This 15–25% is the entire abatacept market you are talking about or only the IV version?
Erez Israeli (Chief Executive Officer)
Initially it will be on the IV. I mean it could be that there will be some movement on that, but we will start with the IV, and the sub-Q will come in February 28th.
Vivek Agarwal (Analyst)
Understood. And in terms of confidence on approval based on your discussion with the FDA, would you like to assign any kind of probability—how comfortable you are based on your discussion with the agency, type of queries, etc.? What are the chances that you have in terms of approval, or is there any possibility of getting a CRL in December and the approval may get delayed by a few months, etc.?
Erez Israeli (Chief Executive Officer)
You know, I’m 33 years in this business, and I had my share of scars from these predictions. We feel good about the product, we feel good about the inspection, we feel good about the correspondence with the U.S. FDA. We want and are preparing to launch in December. If you ask me is there a chance that we’ll get the CRL. There is a chance. I don’t want to—you know, obviously none of us want it—but there is a chance.
Vivek Agarwal (Analyst)
Understood. The second question is on the U.S. generic business trajectory, right? On a quarter-on-quarter we have seen improvement, right, and a part of the improvement has also been driven by some of the products which may face competition in the incremental quarters Q2 and Q3. So just want to get your understanding how we should look at the U.S. numbers with the North American numbers on quarter on quarter. Is there any possibility of a dip in 3Q/4Q, or you can maintain the current trajectory even going forward in the second half?
Erez Israeli (Chief Executive Officer)
So for the U.S. we have one we discussed is abatacept. The other is obviously semaglutide. That is not the U.S., but it is going to be included in the North America sales, and also those complex generics that are on paper. So if we will have that, or the combination of that, we will actually grow versus the current state and for sure sustain it. Yeah, I believe that the numbers are sustainable. Naturally we have—obviously after the six months—that SKU, we have one SKU that has 180, that will obviously go down. I don’t think it will impact significantly, so that we will be able to absorb without a problem. So overall I’m optimistic, but it obviously depends on our ability to be successful with those products that I mentioned.
Vivek Agarwal (Analyst)
Understood. Just last question on margins, because the reason I also asked the question on the U.S. business sustainability is that in the coming quarter you are also indicating or alluding that the R&D spend is also expected to go up, right. So I’m just wondering if R&D spend goes up, some of these products like bosutinib come down, and in this quarter you also had some impact of milestone income, etc. So just trying to understand from where you are getting confidence that you will be able to maintain close to around 20% kind of margins in the second half.
Erez Israeli (Chief Executive Officer)
First, we know our numbers, so I’m sharing that confidence against we will reach that, and it will even go higher. The reason that we feel it, first of all, is the growth that we see in EM in India with the consumer health as well as the United States. Second is the way we control the expenses. So indeed R&D we will have more, but we will have on the other expenses less. And we are planning to continue to do that. So it’s primarily the mix, the growth and obviously the continued launch of new products.
For me, by the way, 20% or 21% is not impressive. We always say that we want 25. We are recovering from lenalidomide, and that’s what we are going to be. But I said it also before. Now I think people believe me. We will have 20% plus, and if we will launch successfully the way I believe semaglutide, it will be more. It will be 21% plus.
Vivek Agarwal (Analyst)
Thanks. Thanks, Erez. Congratulations for the great set of numbers and best of luck.
Aishwarya Sitaram (Head of Investor Relations)
Thanks. Thank you so much. Thanks, Vivek. The next question is from the line of Tushar Manudane from Motilal Oswal. Tushar, please go ahead.
Tushar Manudane (Analyst)
Thanks for the opportunity. Just one question from my side. What kind of price erosion have we seen in case of sugammadex post launch?
Erez Israeli (Chief Executive Officer)
I don’t recall the price. There’s no price—I think whatever we have initial contracts signed, I think it’s getting continued. I think the product launched probably versus the innovator. I don’t remember.
Aishwarya Sitaram (Head of Investor Relations)
Maybe I can get back to you on this later, Tushar.
Tushar Manudane (Analyst)
Sure. That’s it for me.
Aishwarya Sitaram (Head of Investor Relations)
Thanks. Thanks. The next question is—I think it’s a follow-on question from Kunal. So next question is from the line of Dr. Kunal Danesha.
Kunal Danesha (Analyst)
Hey. Hi. Thanks for the follow up. Just one on the abatacept sub-Q filing. Where are we in that process?
Erez Israeli (Chief Executive Officer)
We are supposed to submit it, if I remember correctly, in February. February of 2027. 2027 if I remember correctly. Yeah, we’ll see if MVN will keep me on it.
M V Narasimham (Chief Financial Officer)
Yes, I think around that quarter. Yeah. In that quarter we are going to submit.
Kunal Danesha (Analyst)
Sure, sure. And another one on the complex generics launch that we are basically looking forward to in the second half. Are these—or that product particularly—is dependent on the IP outcome on those launches, or is it more just the approvals? And are these Para IV filings—launch and approval situation? Sure, sure, sure. And lastly on abatacept, you suggested that the ramp up will happen, you know, a couple of quarters later as we get included in the formulary. But when we launch, what kind of commercial infra do we require, especially for the U.S. market, and when do we start the build-out of that?
Erez Israeli (Chief Executive Officer)
So we already started to do it three years ago. So the main framework of the sales and marketing in North America is already there. We will hire a couple of more sales teams—so the team that will cover certain geographies. This is still pending, but the lion’s share of the team is there.
Kunal Danesha (Analyst)
Sure. So there’s not much incremental cost related to that?
Erez Israeli (Chief Executive Officer)
No, not much. Thanks.
Kunal Danesha (Analyst)
Perfect. Thank you. And all the best.
Aishwarya Sitaram (Head of Investor Relations)
The next question. The next question is from the line of [Analyst] from Astute Investment Management. Please go ahead. Yes, yes, yes.
Erez Israeli (Chief Executive Officer)
Brazil likely in Q4, the beginning of Q4, and the rest of the markets. So we will—most of the—we are going to launch in all the smaller markets either in the end of Q3 or at the beginning of Q4. And this is primarily the timelines that from the time that we finish validation and we start to sell batch by batch, some of it may come to the markets in Q3, some will come in January. So all of it will be in that time frame. Some in December, some in January.
It obviously depends on the success of this 6 to 7. But like I mentioned in the past, the run rate of 12 to 15 million pens that we discussed in the past is still my estimate. But obviously it can fluctuate as we understand better the markets once we get all the approvals and we’ll understand the competition in each one of the markets. So right now take it as a very tentative number. But this is what we are preparing for the, say, the 12 months from April.
I did not change my attitude. It’s because we need to see the success of the market share that we will take as well as the success and the market share of our partners. So I don’t have any additional information right now. It’s the same, consistent with what we discussed in the past.
Aishwarya Sitaram (Head of Investor Relations)
Thanks, someone. In the interest of time, we will take one last question from the line of Shain Mukherjee from Nomura. Shain, please go ahead.
Shain Mukherjee (Analyst)
Yeah, thanks for taking my question. Just one question. On the PSAI segment, the growth has been muted for a while. So how do you see that growth playing out? You also mentioned the CDMO revenues at 100 million plus. If you can give some color on the nature of this revenue, is it generics or innovation related? And also the new contract that you signed, when you expect that to kick in, is that meaningful? And any other CDMO contracts that can be added over the next year or so?
Thank you.
Erez Israeli (Chief Executive Officer)
No, thank you, Shain. So on the CDMO, I believe that the growth trajectory will come. It’s a combination of growth in discovery—what you call innovation—so this is growing in double digit. We have also certain contacts with the big companies in which they want to transfer their production into our line. So we have several of these projects, as well as a normal CDMO, meaning that we are doing a project for phase three, phase two for innovative companies.
I believe that this business should grow and should reach two to three times of these numbers in the next three to four years. This is still our plan. I believe that we should get there. On the API side, part of it is that our older products have less demand. And part of it is because most of our launches and most of our activities are done more as a B2B of a finished product. This is actually going well. Part of it we are recognizing as part of PSAI and part of it we are recognizing as part of the relevant EM or North America. So overall the B2B is actually growing. The API merchants, part of it is declining because most of the products—the peptides and this kind of stuff—people prefer to buy the finished goods rather than to buy the API.
Shain Mukherjee (Analyst)
Understood. Thanks. Thank you.
Aishwarya Sitaram (Head of Investor Relations)
Thanks, Shain. That was the last question. Thank you all for joining us today. We value your time and participation on this call. If you have any further questions or need any additional information, please do feel free to reach out to me. With that, we conclude today’s earnings call. Thanks everyone. Thank you. Thank you.
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