Dr Reddy's Laboratories (NYSE:RDY) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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The full earnings call is available at https://drreddys.zoom.us/webinar/register/WN_xVkKzh0MSyaxs-eKX8_0wg#/registration
Summary
Dr Reddy's Laboratories reported a 5.6% decline in revenue for Q1 FY27, primarily due to reduced lenalidomide sales and challenges related to semaglutide API, which impacted EBITDA margins negatively.
The company's underlying base business demonstrated healthy double-digit growth across key geographies, such as North America, supported by new product launches and favorable currency movements.
Strategic initiatives included launching complex generics like bosutinib and nintedanib in the US and securing semaglutide approval in Canada for type 2 diabetes treatment.
The company faced operational challenges, including inventory provisions and higher costs due to Middle East conflicts, but remains optimistic about resuming semaglutide supplies by November.
Management reiterated confidence in a strong second half of the fiscal year, expecting to maintain close to 20% margins with the resumption of semaglutide supplies.
Dr Reddy's Laboratories is pursuing growth in peptides, biosimilars, consumer health, and innovation, with ongoing business development initiatives to enhance organic growth.
Full Transcript
Aishwarya Saram, Head of Investor Relations
Everyone, and welcome to the Q1 FY27 earnings call of Dr Reddy's Laboratories. We appreciate your continued interest in our company. I'm Aishwarya Saram, 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. Narasim (MVN), 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 our press release today 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 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. The session is being recorded, and both the recording as well as the transcript will be made available on our website shortly. Please note that this call is the proprietary material of Dr Reddy's Laboratories 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. Narasim, Chief Financial Officer
Thank you, Aishwarya. Greetings to everyone on the call. It is my pleasure to walk you through our financial performance for the first quarter of FY27. The business reported a revenue decline of 5.6% and an EBITDA margin of 12.5% for the quarter, reflecting the impact of lower lenalidomide revenues, which contributed to the corresponding period last year, as well as a provision of 240 crores for inventory and other costs associated with the recent semaglutide API-related challenges.
Notably, the underlying base business, excluding lenalidomide, continued to deliver healthy double-digit growth across all key geographies, including North America, supported by new product launches and favorable currency movements. All financial figures in this section are translated into US dollars using a convenient translation rate of rupees 94.66, the exchange rate prevailing as of June 30, 2026. Consolidated revenue stood at rupees 8,071 crores, which is US dollars 853 million, a decline of 5.6% year over year and a growth of 7.4% on a sequential basis.
Strong performance across key markets, further aided by favorable forex, was offset by lower lenalidomide sales. NRT revenues declined primarily due to change in operating model post integration, under which rebates and discounts are offered to distributors and recognized net of revenues as compared to the transition period when sales were managed by the seller Haleon. This change in operating model is profit neutral. Consolidated gross profit margin was at 46.5%, a decrease of 1,039 basis points year over year and an increase of 169 basis points sequentially.
The decline in margins during the quarter was largely on account of lower lenalidomide sales, semaglutide API-related provision mentioned earlier, as well as higher solvent costs on account of the Middle East conflict. The reported gross margin was 51.6% for Global Generics and 4.5% for PSAI. Excluding the semaglutide API-related provision mentioned earlier, the overall margin was 49.4, while for Global Generics it was 53.8 and for PSAI it was 12.9%.
SG&A expense was at rupees 20.82 crores, an increase of 12% year over year and 4% sequentially, accounting for 36% of revenues. The year-over-year increase was primarily driven by higher personnel costs due to annual increments, adverse forex movement, targeted investments in the branded business, as well as elevated freight costs arising from disruptions related to the Middle East crisis. The R&D spend was at rupees 577 crores, declined by 8% year over year and up 6% sequentially, accounting for 7.1% of revenues and reflecting lower biosimilar development expenditure as compared to the previous year.
The underlying EBITDA, including other income, stood at rupees 1,009 crores for the quarter, which is US dollars 107 million, a decrease year over year and 55 basis points sequentially, reflecting a margin of 12.5% of revenues. Excluding the semaglutide API-related provision, the margin was at 15.4%. As a result, the profit before tax was 553 crores, that is 58 million US dollars, representing a margin of 6.8%. Excluding the semaglutide API-related provision, the margin was at 9.8%.
Effective tax rate for the quarter was 21.3% compared to 26% in the corresponding period last year. The ETR for the quarter was lower primarily due to reversal of previously recognized tax provisions no longer required consequent to the favorable resolution of the tax assessment pertaining to earlier years, and the favorable 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 443 crores, which is 47 million US dollars, a margin of 5.25% on the revenues before adjusting for the semaglutide API-related provision mentioned earlier. Diluted EPS for the quarter is rupees 5, 32 paisa. Operating working capital as of 30th June 2026 was 14,353 crores, which is 1.52 billion US dollars, a decrease of 81 crores over 31st March 2026. Capex cash outflow for the quarter stood at 307 crores, which is 32 million US dollars. Cash flow during the quarter before acquisition-related payout was -216 crores, which is negative 23 million. As of 06-30-2026, we have a net cash surplus of 3,057 crores, which is 323 million.
Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: US$354 million hedged using a combination of forwards and risk-reversal options scheduled to mature by March 2027. These contracts are hedged at the rate of 92.342 or 94.63 per US dollar. Ruble 2.8 billion hedged at a fixed rate of 1.26 per Russian ruble with maturity falling within the next three months. With this, I now request Erez to take us through the key business highlights.
Erez Israeli — Chief Executive Officer
Thank you, Adrienne, and good day to all of you. We appreciate you joining us today and thank you for your continued interest in our company. We remain consistent in our strategic priorities and committed to delivering goals and profitability through disciplined execution as the operating environment continues to evolve. We are focused on strengthening our base business and building future growth engines in peptides, biosimilars, consumer health and innovation, while pursuing targeted business development initiatives to augment our organic growth efforts.
The underlying base business delivered healthy double-digit growth across all key geographies, including North America. The quarter's EBITDA margins were adversely impacted by semaglutide-related challenges, including lower sales, provision for rejected batches, loss of production-linked incentives and other associated costs, as well as the conflict in the Middle East. Excluding this impact, we estimate that the EBITDA margin would have been in the high teens.
We are working towards resolving the issue and are planning to resume semaglutide commercial supplies by November. Importantly, there is no risk to any patient who has consumed the product. Patient safety and product quality remain our highest priorities and will continue to guide us in every decision we make. We remain confident of a strong second half of the fiscal and, with the resumption of semaglutide supplies, the strength of our base business and our ongoing productivity initiatives will continue to support double-digit base business growth and steady margin improvement.
Let me now walk you through some of the key highlights of the quarter. We commercialized a few key complex generic products, including the anti-cancer drug bosutinib, a first-to-market launch with 180 days of generic drug exclusivity for the 400 milligram strength, and nintedanib, used in the treatment of lung disease in the United States. In Canada, we're the first company to secure approval for the launch of semaglutide for the treatment of type 2 diabetes.
We launched oral semaglutide in India and remain committed to building this important metabolic franchise, complemented by nutrition offerings such as Elevita GLP Plus. Through our collaboration with Nestlé, we continue to make progress bringing innovation to patients in underserved markets. Through partnership, our in-licensed novel therapy Vitoripalimab for treatment of nasopharyngeal carcinoma has entered the 100 crore club in less than two years of launch in India.
During the quarter, we partnered with Inoriva Specialty Therapeutics to develop and commercialize DUO, used in treatment of hospital-acquired bacterial pneumonia, in selected markets across South and Central America, the Caribbean, Russia and CIS countries. Through our collaboration with GARDP and our subsidiary Origin Pharmaceutical Services, we achieved an important milestone in our access agenda by securing TFDA approval for zoliflodacin, a first-in-class treatment for uncomplicated gonorrhea.
The approval came just six months after the US FDA approval, making Thailand the first LMIC country to approve the product. On the regulatory front, the US FDA completed a pre-license inspection (PLI) at our biologics manufacturing facility in Bachupally, Hyderabad, in June 2026 and issued a Form 483 with seven observations, which we already responded to well within the stipulated timelines. Our commitment to good governance and sustainability continues to be recognized globally.
During the quarter, we celebrated 25 years of our New York Stock Exchange listing, reinforcing our distinction as the first non Indian pharmaceutical company listed at the Exchange as well as our commitment to global best practices in governance, compliance and capital market access. FTSE Russell placed us in the top 1% worldwide, while Times-Statista ranked us 165 globally and 5 among Indian companies among the world's most sustainable companies.
Let me take you through the key business highlights for the quarter. Please note that all the financial figures mentioned are reported in their respective local currencies. Our North America generics business reported revenue of $236 million for the quarter, accounting for 27% of our overall revenue and reflecting a decline of 41% year over year and a growth of 19% sequentially. The year-on-year decline was primarily on account of lower revenue of lenalidomide; the underlying base business delivered double-digit growth aided by new product launches during the quarter. During the quarter, we launched six new products in the region, including complex generics such as bosutinib and nintedanib, and we remain on track to bring more such products to the market as we progress through the year. Our branded franchise, including India, emerging markets and consumer health business, nicotine replacement therapy, or NRT, together accounted for 42% of overall revenues and remain an important source of stable margins for the company.
Our emerging markets business recorded revenue of 1,833 crore, accounting for 22% of our overall revenues and reflecting a robust growth of 31% year on year and 2% quarter on quarter. Growth was driven by new product launches across the cost markets and favorable currency movement. During the quarter, we introduced 43 new products across countries. Our India-based revenues were 1,788 crore, accounting for 21% of our overall revenues and delivering robust double-digit year-on-year growth of 70% and 10% sequentially.
This performance was primarily driven by the innovation franchise, new launches including acquired brands, price increase and volume growth. IQVIA June 2026 data highlights our continued outperformance of the Indian pharmaceutical market in moving quarterly total growth of 14.6% versus 13.5% for the IPM. In the moving annual total, MAT growth of 13.5% versus 11.1% for the market, our IPM rank stood at 9 for the quarter and 10 for the year. We launched seven new brands during the quarter, further enhancing our domestic presence.
Our European business, which included NRT, posted revenue of $131 million for the quarter, accounting for 18% of our overall revenues. Revenues were broadly in line with the corresponding period last year and declined 3% sequentially on account of price erosion as well as the impact of operating model changes post NRT integration, offsetting the contribution from new product launches in generics. During the quarter, we launched 24 new generic products across markets, further expanding our European product portfolio.
Our PSAI business reported revenues of $91 million, accounting for 11% of the overall revenues. Revenues declined 5% year over year and 10% sequentially, primarily on account of lower API volume uptake. During the quarter, we filed 38 drug master files globally. We remain focused on strengthening our core business while building the next wave of growth across peptides, biosimilars, consumer health and innovation. We'll continue to advance key products such as semaglutide and abatacept, improve operational efficiency and pursue value-accretive business development opportunities to drive long-term value creation.
With that, I invite your questions as we move into the Q&A session.
Aishwarya Saram, Head of Investor Relations
Thank you very much. We will now begin the question-and-answer session. To join the question queue, please use the Raise Hand option available on the bar 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 to not ask more than two questions at a time and 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 that option. The first question is from the line of Neha Manturia from Bank of America. Neha, please go ahead.
M.V. Narasim, Chief Financial Officer
Just the technicalities. The first part of the question, if you can repeat. We heard you from the middle. Okay?
Neha Manturia, Analyst at Bank of America
My question was that we had given a guidance of 20% margins excluding sema. So just wanted to get a sense of how we improve, you know, the current high teens margin that you've indicated adjusted for sema and the Middle East impact, given that you're still uncertain about, you know, when sema comes back and how much it comes back in the second half.
M.V. Narasim, Chief Financial Officer
Yeah, just to make sure that if we are taking out from the 12.5 and we take out the impact of what we provide plus in here that what we did not sell, just to make sure that, and in addition to PLI and the rest of the stuff, what I said the high teens, it's actually around 18%. Okay. So this quarter, the equivalent of the 19% last quarter is 18% for this quarter. We are still—I maintain what we discussed a few weeks ago—that we are in the neighborhood of the 20% and likely to stay, and that's what we are saying we will do in the next quarter, including the quarter next quarter which will not be with semaglutide.
So that's still the case, to be in the neighborhood of the 20%. As we will resume, because with assumption that we will come back with semaglutide in November, of course under this assumption the margins will be higher than that. So we are maintaining what we have discussed in June.
Neha Manturia, Analyst at Bank of America
Understood. And second question is on the US business. There seems to be a decline quarter on quarter despite the fact that we launched Canada, we had bosutinib, and I'm adjusting the shelf stock adjustments, you know, in the base quarter here. What exactly happened in the US, you know, because given we had the bosutinib FDF launch I would have assumed some channel filling as well as the Canada supplies?
Erez Israeli — Chief Executive Officer
Supplies are actually in the right direction. There were some timing of procurement of the product, and the launch of the product was very successful. So overall, I'm still maintaining a double-digit growth for the US market. Q-on-Q, as you saw already in this quarter we grew double digit, and it will continue throughout the year. So it's a double-digit growth in the United States. It's just timing of product and nothing special.
Aishwarya Saram, Head of Investor Relations
Thank you so much. Thanks, Neha. The next question is from the line of Dr. Kunal Danesha from Macquarie. Kunal, go ahead please.
Kunal Danesha, Analyst at Macquarie
Hi, good evening. Thank you for the opportunity. First question on abatacept update. So two aspects here: one on plant inspection where we have got seven observations and we have submitted the response. But let's say when we compare the observations with the last inspection which had like five observations, you know, how do those compare? And second aspect, from an ongoing dialogue perspective with the US FDA on the product approval, what are the types of queries we are receiving?
Is it on data on the clinical side, manufacturing-related, CMC-related? Color here would be helpful.
Erez Israeli — Chief Executive Officer
Sure. So the observations—the seven—were very different than those we got, and we believe that they are addressable. And we sent all the relevant information to the US FDA on Friday, which was well within the stipulated time. So this is under review now. We will seek feedback, obviously, from the FDA on what we submitted. As related to the BLA, we did not receive any query as we speak. The goal date of the product is still in December, and this is still intact.
We did not have any query or any ask as of date.
Kunal Danesha, Analyst at Macquarie
Sure. And on that, let's say, inspection—what is your understanding? Would it require another inspection, or the response you have submitted would suffice?
Erez Israeli — Chief Executive Officer
To my opinion, we should get approval.
UNKNOWN, Analyst
So that's the first question. Second question is some of the productivity measures that we have talked about in the past, right? That we will try to improve the efficiencies. But the way I see it, when I look at the SG&A expense without R&D, QoQ, is still higher. Right. So is there any specific cost-saving measures are we undertaking? If yes, what's the quantum in terms of saving that we can see and when those measures would be visible in the overall, you know, performance?
M.V. Narasim, Chief Financial Officer
So Kunal, even we said like our absolute is any amount like FY26. FY26 largely in line with FY26 actuals this quarter. Because whatever growth you have seen, largely that growth is on account of adverse forex rate movement as well as there is an elevated price cost on account of the Middle East conflict. These two is like almost what the increase, what the growth you have seen on either QoQ or on the year-over-year almost as a 75% to 80% on account of these two factors.
Otherwise, absolute amount is almost like if you take it out, then there is not a much significant increase.
Erez Israeli — Chief Executive Officer
So just to connect you up that we are planning to grow double digits and we are planning to grow the associate cost by low single digits. So the productivity measures will be primarily that the sales that associate, obviously with this S&M, will grow much faster than the expenses. But as we grow in most of our 52% now for businesses, branded markets, so naturally in such a case we need S&M to grow the business, and what is important, they will grow the sales much faster than the cost.
In this case we are talking about the gap of 10% to 12% between the sales growth and the cost growth and that is where the productivity we are going to see.
UNKNOWN, Analyst
Should we start this difference in the growth? I assume it would be gradual, right? Eventually, or it's just linked to the revenue and not any specific cost measure.
Erez Israeli — Chief Executive Officer
No, it is. First of all you already see that, and I know it's hard because of all those one-time activities and/or war activities, but you already see it and as time will go by it's obviously we'll see it more. But the way to see it is that eventually the margins, the growth in emerging markets—most of the S&M is in emerging markets—and the growth in the emerging market is right now north of 15% and in some places more than 20%, while the cost in a very low single-digit growth if we take out the one-time activities.
UNKNOWN, Analyst
If I may just squeeze in one: we have around 3,000 crore of cash on the balance sheet. So what kind of opportunities are we looking at from the business development activity? And secondly, on today's announcement from the US President on tariffs on generics, how do we think about the overall development? I know the details are missing, but what would be your initial impression of that and how would you tackle that? Thank you.
Erez Israeli — Chief Executive Officer
Sure. So just the first one was 3,000.
UNKNOWN, Analyst
That's the case.
Erez Israeli — Chief Executive Officer
So first of all we are engaged in business development. I also mentioned it in my script. There are actually quite a few deals that we are engaging in all sectors—in generics and innovation, in biosimilars—and hopefully we can announce those deals as we sign it. So the cash on the balance sheet will be used for inorganic. On the tariff, we've been there last year. There is obviously it's a tweet, and between tweets and reality a lot of things likely to happen.
As we speak, I don't see any reason to be concerned. Even according to the tweet we are supposed to have two years without tariff. It's not practical to move any facility in two years. You know it well, everybody knows it well. So I'm assuming that it's an opening for a discussion and dialogue. Both the IPA here in India as well as the association in the United States already engaged on that. So we will see as it evolves. Personally I don't at this stage give too much weight to that.
M.V. Narasim, Chief Financial Officer
If I may add, almost 25% to 30% of our revenues are actually being manufactured by CMOs in the US, so we already have that as a starting point.
Erez Israeli — Chief Executive Officer
But I will not give too much weight at this stage for that. Let's see how it will roll. We've been there last year, and between what we started and how it ends it was very, very different.
UNKNOWN, Analyst
Sure. Thank you and all the best.
Aishwarya Saram, Head of Investor Relations
Thank you. Thanks, Guraj. The next question is from the line of Kausif Sheikh from BNP Paribas. Kausif, please go ahead.
Kausif Sheikh, Analyst at BNP Paribas
Thanks, Aishwarya, for the opportunity. Good evening. First, a question on semaglutide pens and API. Can you tell us how many pens has Dr Reddy's been able to sell during the quarter? And a broad-based breakup, regional-wise, would be helpful.
Erez Israeli — Chief Executive Officer
Yes, so we sold 180,000 pens before we stopped. We were supposed to sell more, by the way, but obviously that's also part of the reason why there is a relatively high level of provision that we have to do on material and basis that we will not use. Obviously, most of it will be for the market of Canada. We have also for as well. We are still maintaining what I said nine days ago that, with assumption that we will finish—and this is still the timelines—that in around the third week of September we are supposed to finish all the testing of the API, then supply to our partners.
One source we have the slotting and agreement with them, and if everything will go well we should be able to give to the market 6 to 7 million pens between November and March. That's still the same place that we are.
Kausif Sheikh, Analyst at BNP Paribas
Yeah, that's helpful. Second question on the sema API: just wanted to confirm that Dr Reddy's is also supplying this API to many global pharma manufacturer players who are also your competitors in Canada and other markets. Just want to understand your strategy over here—means how much percent of capacity Dr Reddy's plans to keep for captive consumption for the future.
Erez Israeli — Chief Executive Officer
Oh, we have plenty of capacity. The issue—the theoretical capacity, I'm saying theoretical because we need to scale up in a satisfactory manner—but we have plenty of capacity for both third party as well as ourselves. We are talking about the theoretical can go up to 550, but let's say even with the non–scale up it can be north of 300. At this stage it's not relevant; it's more about the quality of the API, not the capacity.
Kausif Sheikh, Analyst at BNP Paribas
The last question: Abatacept—what would be your timeline for the launch? If the product has to be approved from the CMO side, can we expect some delay from the earlier guidance which we had planned in calendar year 2027?
Erez Israeli — Chief Executive Officer
Abatacept is not out of CMO. Abatacept is made by our own facility in Bachupally, and that's the facility that underwent the FDA inspections. The timing is a launch of for Nafova; we are right now the goal date is December. So obviously we hope for that. But we need to see whether we will get additional query and if that will stay intact.
Kausif Sheikh, Analyst at BNP Paribas
But I guess, I think we have filed the product from two of the facets. Right? The other one is from CMO side. We have done the dual filings for the product, right.
Erez Israeli — Chief Executive Officer
Abatacept was filed only from Bachupally, sir.
Kausif Sheikh, Analyst at BNP Paribas
Understood. That's helpful. We'll get back in the queue.
Aishwarya Saram, Head of Investor Relations
Thank you. Kausif. The next question is from the line of [HSBC]. Tamanti, please go ahead.
UNKNOWN, Analyst at HSBC
Hi, thank you for the opportunity. My question is again on semaglutide. So as you continue to work towards resuming supplies after addressing the OOS issues, we understand in some of your targeted markets new players are getting approvals, etc. We understand you are B2B suppliers to a few of them. But nonetheless, by the time you get back in these markets, how do you assess the competition scenario and your ability to gain market share there?
Erez Israeli — Chief Executive Officer
So we believe right now that the demand for the 6 to 7 million pens will be there for us, and it's even backed with orders. So we believe that we'll be able to sell those 6 to 7. Obviously it's a bummer. We cannot deny it. We see the consequences. We lost four months of sales. Obviously from the 10–11 to the 6–7, this is the impact on us. But we feel that the demand for the product is still very high, and the people that will enter the market in these four months, to the best of our knowledge, there are not that many, at least in the markets that we are planning to get approvals.
So it's a bummer, but we believe that the product will stay solid for us.
UNKNOWN, Analyst at HSBC
Okay. And also wanted to understand this API issue. Will it impact the review of application for semaglutide in some of the markets? Apart from—obviously Canada is something where you have approved product—but say in Brazil or in other markets, will the applications be halted till the time you resolve the API issue?
Erez Israeli — Chief Executive Officer
No, because the specs stay the same. So we are not changing the specs or the quality. It was just our ability to meet the specs in the scale-up bench on the API which we need to resolve. But the file is good, the quality of the drug product is good. So I don't anticipate any delays or a change to applications anywhere, including Brazil.
UNKNOWN, Analyst at HSBC
Okay, so in how many countries you have filed semaglutide application so far—how many?
Erez Israeli — Chief Executive Officer
We filed already more than 20–30 countries for sure. So the program of the 80 countries remained the same. If I remember correctly—but please forgive me if I'm not fully accurate—it's around 30 countries already, if I remember correctly.
UNKNOWN, Analyst at HSBC
Sure. And my last question is: how should we look at R&D and tax rate from here on? So we understand this quarter had some benefit on the taxes, but on a normalized basis how should we look for the full year?
M.V. Narasim, Chief Financial Officer
So our tax rate around between, I think, 24% to 25% on full-year basis, and R&D, what we have stated earlier, it is in the range of 7% to 8%.
UNKNOWN, Analyst at HSBC
Okay. And any major R&D programs after Abatacept where you plan to spend majority—
Erez Israeli — Chief Executive Officer
So we have a long pipeline for the future, both on the peptide as well as additional biosimilars. This likely just would be closer to the 7%, that can be said. But most of the R&D spend is right now going to products post-2034, between 2034 to 2040 type of. That's where the R&D goes, besides of course some allocation that comes for licensing fee as well as remediation of product, but mostly it's for later product.
Aishwarya Saram, Head of Investor Relations
Sure. Thank you. I'll get back into— Thank you. The next question is from the line of Shyan Mukherjee from Nomura. Shyan, go ahead.
Shyan Mukherjee, Analyst at Nomura
Thanks for taking my question. Since you last addressed on the sema situation, is there any progress in terms of root cause analysis and how you see possibility of a resolution? How do you sort of assess the risk of that program at this stage?
Erez Israeli — Chief Executive Officer
So we identified the root cause. We started also the activities in the sites. There is a program management that takes us again to around September 22, September 23. The success rate is high. I don't know to say exactly percentage; if I need to show a number it's somewhere between 80% to 90%, but there is a chance that it will fail. I just want to make sure—it's not 100%—but we feel relatively confident. Let's cross our fingers on that.
UNKNOWN, Analyst
I see. Okay, and just one last one on CapEx. What's the guidance for this year on CapEx and for next year, please?
M.V. Narasim, Chief Financial Officer
We see, at this point of time, around 1,800 crores on a full-year basis.
UNKNOWN, Analyst
And will this come down next year, you think?
M.V. Narasim, Chief Financial Officer
Hopefully. That's our expectation—around that range—because there is continuous, specific product investment in biosimilars and peptides, and regular capex as well. Already, earlier we were in the 2,500–2,700 crores range, and from there this year we are reducing to 1,800. I believe that stays at that level.
UNKNOWN, Analyst
Okay, so if I can just ask one question because you mentioned about Middle East conflict and freight cost, etc. What's the level of impact, either as a percentage of sales or an absolute amount? If you can quantify. Okay, and is there any improvement now? Because the conflict seems to have escalated once again. So how do you see it for the rest of the year? I see. Okay, thank you.
M.V. Narasim, Chief Financial Officer
Both solvent and the freight impact on EBITDA is close to around 1%. We believe that even as long as it continues—because earlier we thought if it stopped, then solvent prices would decline, and we have seen the decline—and now, because once again the war is going on, we believe this will stay at least up to December at this level of increase.
Aishwarya Saram, Head of Investor Relations
Thanks. The next question is from the line of Rahul Javani from IIFL. Rahul, please go ahead.
Rahul Javani, Analyst at IIFL
Yeah, thank you, sir, for taking my question. I wanted some clarity in terms of base business growth. Now, if I look at our North America revenue base in FY22, it was close to a billion dollars. And if I take this quarter's number, then we are annualizing at around $950 million. Now, these past four years we have launched around 90 to 100 products in the US; we did a Mayne acquisition as well, which contributed $100 million in terms of incremental revenue.
So despite these launches and the Mayne acquisition, where have we struggled in terms of driving growth on the base US business? So if you can please comment on that.
Erez Israeli — Chief Executive Officer
No, sure. Obviously we faced, on the base of FY22 or any other year that you're referring to, significant price erosions through this period of time. In some of the years it was even in double digits; in some of them it was in single digits. This is, and you know that very well, very normal for the United States. And against that we brought new products. Some brought us more value and some less overall. I'm reiterating what I'm saying all along: the U.S. market—the generic piece of it—is at best single-digit growth without the upside. From time to time there is an upside that comes, and we had upside through the years, whether it was lenalidomide, then before that there were other products. So that piece of the market is a single-digit, even low single-digit type of a market, in which new products compensate for price erosion. That piece, the reason that we are still there besides that, is that this group of products is what's feeding the growth in emerging markets as well as in Europe.
So the leveraged growth and what you see now in Europe as well as in emerging markets is primarily the US portfolio that is growing there. So we moved from investing in the US to taking a product and launching globally. And so overall the ROI of the products that we launched in the years that you mentioned actually gives us a very, very good ROI—it's just not coming in the United States; we see it in the other markets. In addition to that, we obviously are diversifying ourselves to other business models, as we stated.
But for your analysis you are correct. In this period of time, if you take out all the calcidolomides, your analysis is correct.
Rahul Javani, Analyst at IIFL
Sure, sir. And do you think that we have lacked peers in terms of R&D productivity for the US generic business, given that many of our Indian peers have been able to launch products in, let's say, respiratory segments or injectables, which has allowed them to scale up their US portfolio, while we obviously seem to have had pretty muted performance on the US business over the past four- to five-year period? So is there any issue in terms of the productivity for the R&D business, and do we have any measures in terms of evaluating this R&D productivity, particularly for the US generic business?
Erez Israeli — Chief Executive Officer
So to your question, yes, we failed in certain complex generics. We even stated some of them in the past, like iron sucrose, like conjugated estrogen, like some of the peptides that were delayed. So the answer is yes, we did have these issues. I believe that we corrected it. Obviously, as we know very well, the R&D expenses of today are for products that we will launch on average 10 to 12 years from now. So obviously the products that we launched in this period of time were products that were developed before that.
And we absolutely had productivity issues, and I believe that we took the right measures to correct it. And again, I agree with your observation. I believe that we took care of it.
Rahul Javani, Analyst at IIFL
Sure, sir. And last question from my end on abatacept: I was also under the impression that we would file abatacept from the partner facility as well. But right now you're saying that abatacept is only filed from Bachupally. So do you see any risk to abatacept now in terms of, let's say, contributing to US in FY28, and are we evaluating an alternate site filing for abatacept?
Erez Israeli — Chief Executive Officer
Abatacept was never meant to be filed from a CMO. It was developed and meant to be filed out of Bachupally—from CCM5, which is our drug substance, and our FFM2, which is the fill and finish—both of them in Bachupally. So this was always the plan. There was some discussion in the past whether, because of tariff, we should get a kind of—in the case of tariff—should we get a CMO in the United States? We did engage with this issue, but tariff became not relevant.
Plus any CMO that we do now will have to be a post-approval supplement, because first they will have to approve the product and then, based on that, you can add information about the CMO. So any activity like that will be a post-approval supplement and will require also relatively high cost, because as you know CMO biologics products are not cheap. At the moment, the launch will be out of Bachupally. About the risk: There are two types of risk. One is in the case that we will have additional queries on the GMP, and I believe that it's addressable, like I mentioned, but it is possible to get.
And second, queries that we may get on the BLA—if we will get these, naturally they can delay the launch of abatacept. As we speak today, the goal date for abatacept is in mid-December 2026.
Rahul Javani, Analyst at IIFL
Sure, sir. That's it from my side. Thank you.
Aishwarya Saram, Head of Investor Relations
Thanks, Rahul. The next question is from the line of Vivek Agarwal from Citi. Vivek, please go ahead.
Vivek Agarwal, Analyst at Citi
Thanks, Aarya. Thanks for the opportunity. I just want to understand—so the India business: we have done good growth in the quarter. I just want to understand what is the organic growth if we remove a couple of these small acquisitions that we have made in this fall. Thank you.
M.V. Narasim, Chief Financial Officer
In India, if we remove the recent acquisitions, it's 15%—yes, 15.5%—fully organic.
Vivek Agarwal, Analyst at Citi
Understood. And does that include semaglutide supply as well?
Erez Israeli — Chief Executive Officer
Not much, Vivek.
Vivek Agarwal, Analyst at Citi
Understood. Thank you. Just one more question on bosutinib. Does that include a full-quarter impact of launch, or except a very small launch in this product?
Erez Israeli — Chief Executive Officer
It's one month—actually, less than a month. It's two weeks of supply, and we have exclusivity on the 400 mg.
Vivek Agarwal, Analyst at Citi
Thanks. That's from my side. Thank you.
Aishwarya Saram, Head of Investor Relations
The next question is from the line of Dr. Binu Patiparipal from Elara Capital. Binu, please go ahead.
Dr. Binu Patiparipal, Analyst at Elara Capital
Hi, good evening. Just a couple of quick questions. One, in Canada, I believe we had an arrangement to provide semaglutide to Sandoz as well. Does that deal still hold and are they going to wait for our supplies to be back?
Erez Israeli — Chief Executive Officer
Yeah, it still holds, and we believe that if supply will come back in November, we'll be able to meet the commitment to Sandoz.
Dr. Binu Patiparipal, Analyst at Elara Capital
And second, on bosutinib: I believe it's a partner product; you are selling it in the market. What would be the broad profit-share arrangement? Is it equal, or do you make only a distribution margin?
M.V. Narasim, Chief Financial Officer
Overall, if you see, the margin from this product is above company average margin.
Aishwarya Saram, Head of Investor Relations
Thanks. The next question is from the line of Surya Patra from Philip Capital. Surya, please go ahead.
Surya Patra, Analyst at Philip Capital
Yeah, thanks for the opportunity. My first question is about the NRT. You mentioned in your opening remarks that we have seen a decline this quarter. This is after the complete integration of the acquisition. So can you give some sense of what led to this kind of decline and whether this is a kind of trend likely to be seen in subsequent quarters?
Erez Israeli — Chief Executive Officer
The trend is a trend of growth. What we had this quarter is that in some markets, because of the cutoff in inventory that was in the market, we did not sell in some weeks in this quarter—and that's what led to that—plus the timing of the tender in Brazil, which we won, but we sold more in the quarter and we did not sell in this quarter. So overall you should see continued growth and very, very healthy margins. So far, so good on this one.
M.V. Narasim, Chief Financial Officer
Apart from what Erez said, Surya, another one is because there is till March 2026. Last year we were just depending on Kelly—I think they were doing—then we were paying certain fees, and this year we completed the integration by March 2026. The entire sales we are operating as part of this new model. And then what Alien was offering earlier—rebates and discounts—were not impacting the sales line. But this year, now, since we are directly distributing the product to the distributor customers, what rebate and discount setting we are giving is now part of the gross unit in the revenue line, and then correspondingly there is a reduction.
Overall, if you look at the profit, it is neutral—absolutely there is no impact—and then it is continuous. Overall, for this business, EBITDA margin is very healthy, and the business momentum is continuing in the right direction.
Aishwarya Saram, Head of Investor Relations
Alright, thanks. The next question is from the line of Shashank Krishna Kumar from NK Capital. Shashank, please go ahead.
Shashank Krishna Kumar, Analyst at NK Capital
Yeah, hi. Thanks for taking my question, Erez. My first one was on our rituximab filing. I think one of our competitors has received interchangeability recently. So does our filing also include comparative data so that, on approval, would we also get interchangeability on this product?
Erez Israeli — Chief Executive Officer
Yeah. So our rituximab for sure will be interchangeable. As you know, we got delays because rituximab approval in the United States got delayed. So for us it's mostly to obtain approvals, because the USFDA inspection PI was worked about the safarituximab. Once we go, our partners will not have a problem to switch products. So our products will be also interchangeable.
Shashank Krishna Kumar, Analyst at NK Capital
Got it. Thank you, that's helpful. And second one on denosumab. I think obviously our filing was stuck because of issues at our partner's facility. I believe our partner has addressed the FDA's observations, but the resubmission obviously has to happen at our end. So have we resubmitted the BLA for denosumab?
Erez Israeli — Chief Executive Officer
The BLA is coming only from our partner, who is also making the products, and we are now in discussions with the partner on what we do with this product.
Shashank Krishna Kumar, Analyst at NK Capital
Good, thank you. That's it from my side.
Aishwarya Saram, Head of Investor Relations
Thanks, Shashank. Participants are requested to restrict the number of questions to just one to ensure that everyone on the call gets an opportunity to interact with management. The next question is from the line of Yogesh Sony, Haitong Securities. Yogesh, go ahead.
UNKNOWN, Analyst
Thanks for the opportunity. So my question is with regard to the semaglutide API provision that you have taken. If you could help us understand, had this provision not been taken, what would have been the pen volume that would have been sold? So the question is to understand what is the opportunity loss that we have faced as a result of this EPR provision. Understood, and thank you for that. And second question is just to understand, I think in one and a half months of commercialization in this Canada market, what kind of market share did we enjoy in the semaglutide space?
If I can squeeze in one more question. So given that we are looking to resume the supplies from November, what is the confidence around 6 to 7 million pens, given that Apotex would have already scaled up its market share in the next three to four months? So how difficult does this target seem for us? Thank you, Erez, for your clarifications.
Erez Israeli — Chief Executive Officer
So the opportunity is about 3 to 4 million pens, assuming that we are coming back in November. Yes, we did not have the chance to sell much. I cannot really speak on market share. Firstly, we were one of the first to launch along with Apotex. So naturally by the time that we come back, we're probably going to be only the two of us. So naturally when you are two, it's a relatively high market share. But we did not manage to get market share per se as we did not sell much.
So the confidence is high. It's not just Canada for us. By that period of time we'll have approval in quite a few markets. Plus we have engagement with partners; we mentioned some of the names. So the confidence is very high. Actually all of our partners are looking forward that we'll come back. Like I mentioned before, I believe that we will have a solid demand for these 6 to 7 million pens. And also I believe that our relationship with our partners will allow us to make this product.
We just need to give them the API.
OPERATOR
Thank you. I would once again request everyone to restrict the number of questions to just one since we have many in the question queue. The next question is from the line of Amlan Jothi Das from J.P. Morgan. Please go ahead.
Amlan Jothi Das, Analyst at J.P. Morgan
Yeah, can you hear me? Sorry. Yeah, so my question is regarding the Canada market. So we have seen that a third competitor has also gotten approval recently and one of the other companies is targeting December-end approval. So with three to four peers in the market, what kind of pricing do you see in the Canada market when supply resumes for you in November? So just to put a perspective, what kind of prices do you expect then? So would it be in the range of $30, say, or would it be lower than that?
Could you just give us a directional sense on that? My next question is on the U.S. guidance: your immuno guidance for double-digit growth in the U.S. — is it the guidance for the base business excluding semaglutide, or is it...? Sorry, without. Okay. Okay, thanks.
Erez Israeli — Chief Executive Officer
Yeah, the partner that got approval is using our products. And I'm not anticipating any more price erosion because the price went day one to the type of market that reflects the three players and above. So I do not anticipate additional, you know, changes to pricing or reimbursement pricing. Naturally once we come back and we'll see how many more, we may have to change rebates or stuff like that. This is yet to be seen. But at the moment also the one that got approval is waiting for us to resolve the operation issues.
As you know and I discussed it in previous meetings, the price in Canada is 78 Canadian. And then from that you need to have the margins that you need to give to the relevant retailers, depends on the type of market that you do — whether it is a private market, public market, or cash market. So it is a range from 38% which is for the retail and for what you call the private market. And then, in accordance, depends on how many patients are also reimbursed by the relevant provinces, you may need to give additional 5 to 6% to the relevant province.
That did not change from our previous meetings — it's the same set of numbers. Yes, semaglutide is in Canada, so we are not selling in the United States. So yeah, it's without semaglutide and without. It's a double-digit growth and was already that this quarter.
OPERATOR
Thanks. And the next question is from the line of Sumit Gupta from Antique Stockbroking. Sumit, please go ahead.
Sumit Gupta, Analyst at Antique Stockbroking
Hey, hi. Thanks for the opportunity. So what are the biologics sales globally as of now and when can we expect it to break even? Sorry — biologics. On the biologics sales, how much is it now? And, like, how should we see a bit of a step-up going forward, let's say over the next two to three years? So what will the timeline be, do you expect? Understood, sir. Thank you.
Erez Israeli — Chief Executive Officer
It's about 2% of our sales and we are supposed to be profitable the day that we launch our biosimilar. So we submitted the IV product in the United States. Like I mentioned before, December is the goal date — that's the earliest we can get approval. We can launch upon approval. The Europe IV was also filed, but it's very, very small because in Europe it's primarily the sub-Q. In terms of the sub-Q, it will be in 2028, likely around February or March in the United States, and probably around September to October in Europe.
OPERATOR
Thank you. The next question is from the line of Vishal Manchanda from Systematix. Vishal, I would request you to restrict yourself to just one question, please.
Vishal Manchanda, Analyst at Systematix
Hi, thanks for the opportunity. On our biologics plant inspection, can you share whether we had any observations related to sterility assurance? And do you expect any scale-up issues in abatacept, like we saw in semaglutide? Got it. And PLI incentives — if you can call out, do we expect any meaningful number here?
Erez Israeli — Chief Executive Officer
No, there is not as such. And like I mentioned before, all the observations are addressable and we already answered them. It's obviously a very, very different product. I hope not — we are not planning that. But you know, in pharmaceuticals you never know. But right now we are optimistic.
M.V. Narasim, Chief Financial Officer
So in the first quarter financials, no PLI. Anything in the next nine months meaningful? So once, I think, semaglutide supply resumes, as the PLI scheme also requires for the set-up products minimum growth, once we assess and then if the growth is there, then PLI will start to accrue.
Vishal Manchanda, Analyst at Systematix
Got it. Thank you.
OPERATOR
Okay. And in the interest of time we will continue. Continue. Okay. Allow this. The next question is from the line of Krishnu Saha from Quantum Mutual Funds. Please go ahead.
Krishnu Saha, Analyst at Quantum Mutual Fund
Can you hear me? Hello? Yeah, so just quickly, we are supplying to partners of Sandoz or Aspen and others. Is there any penalty we have to pay for failure to supply? And just to jog my memory, the API is being supplied from a U.S. FDA plant or which plant is it coming from? If there is an OAI from this plant, does our approval in Canada get impacted? Yeah. And it's from the Indian plant. Okay. And this is 400 milligrams which we have exclusively — how big is the market size?
Just for my knowledge, please. Yeah, yeah, yeah, sorry, my mistake. Just the 400 milligrams — any idea? And how is the nicotine patch doing for us as of now? Any growth rate you're seeing out there? Because it's a profitable business for us.
Erez Israeli — Chief Executive Officer
Whatever is as per the agreements, that's already taken care of. And in the case of Sandoz/Aspen, at this point of time we don't expect any such claims. This is from our Vizag plant, C206. It is a U.S. FDA–approved plant. Sorry, sorry, sorry — there is no OAI. If there will be an OAI then it will affect the U.S. Maybe the Canadian will — but it's very hypothetical because the U.S. inspected the plant already this year and we got approval. So not relevant.
But that's a hypothetical question. Canadian and American are different regimes. Yeah. I think overall the product is a large one. It's in variance. It's profitable and it is growing and we are very happy with it. We answered these questions before. Thank you. If we can not repeat questions, we're happy to give over time but please let us.
Krishnu Saha, Analyst at Quantum Mutual Fund
Sure. Thank you.
OPERATOR
Thank you.
M.V. Narasim, Chief Financial Officer
And just to answer your question, 400 mg is about 300 million as far as the market is concerned.
Krishnu Saha, Analyst at Quantum Mutual Fund
Yeah. Thank you.
OPERATOR
The next question is from the line of Rupesh Satya from Launch Equity. Please go ahead.
Rupesh Satya, Analyst at Launch Equity
Yeah, hi. Am I audible? My question is on interchangeability in Canadian markets. So there are these various provinces which give out interchangeability designation, and also I think private insurers also give interchangeability designation. And most of this insurance has a clause of mandatory generic substitutions. So could you give color on what it takes to get this interchangeability designation? And when that happens, my expectation is all of the prescription volume will move to generic.
So when do we expect that to happen? So any color on that will be helpful. And the other aspect also is the innovator's product is a recombinant product and our product is a synthetic product. So does that create some problems for this interchangeability tag? So next year then generics will have 80–90% market share in Canada. Is that a fair thing to assume? Insurance-driven market. I'm not asking about out of pocket or retail. And then just quickly, when do we expect Brazil approval for us or any of our partners?
Any time estimate you can give?
Erez Israeli — Chief Executive Officer
There is no problem with interchangeability in any market. The product is approved as generics and the type of the API doesn't affect it. So the semaglutide is approved as a generic product — no issues of interchangeability. And you don't need to prove anything beyond what the normal submissions require; we have to show obviously comparability as well as all the relevant safety like immunogenicity and other data. I don't know about 80–90%. It's about also the confidence of the people, at least at the launch time.
The allocation of the retailers assumed 60% and then will grow. It started with 60% and likely to go higher. What exactly the number will be, I don't know. But I believe that as the confidence and the supply will be there, it's going to be primarily a generic market. It should be shortly. There was stuff about the rejection that was reversed and we are expecting approval in the next few weeks.
Rupesh Satya, Analyst at Launch Equity
Okay, thank you. Thank you for answering my questions.
OPERATOR
In the extra time we'll take one last question from Shyan Mukherjee. I think he's joined back with you. Yes.
Shyan Mukherjee, Analyst at Nomura
Yeah, thanks for taking the follow-up. Just a couple of questions. So in the U.S., I think you mentioned 2025 launches — how many are we expecting through the rest of the year and are there any material launches that are lined up or you expect? And how large is the opportunity — can you give an idea about the size of the revenue potential from that launch?
Erez Israeli — Chief Executive Officer
So altogether right now we are targeting 27, and we are supposed to have a reasonable launch — let's call it, I cannot share the name of the product — already in the next couple of weeks, so in the second quarter. It should be in the range of tens of millions of dollars, that specific launch.
UNKNOWN, Analyst
Okay, thank you. And MVN, if you can talk about, like I understand biologics and peptide facility operations are not generating any revenues at this. What's the revenue-cost mismatch there? What's the cost that is hitting the P&L on account of this which is not generating any revenues?
M.V. Narasim, Chief Financial Officer
So in the biologics, like already we invested for like a CCM 5 for the thermometer set suddenly, so we are just waiting for approval and then whatever is the expenses is already sitting in our P&L. Similarly, what the capacities we have created for peptides, both for API and formulation fill-finish also it is there. Once these two products comes back, and definitely then it will be really profit positive.
UNKNOWN, Analyst
Yeah, but you know, I was wondering if you can quantify the amount of cost that you're incurring on account of these two at this point. Maybe I'll just come back. Okay. Okay, thanks. Thank you.
Aishwarya Saram, Head of Investor Relations
That was the last question. Thanks, Shrine. Thank you everyone for joining us today. We value your time and your 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. Thank you. Thank you very much.
OPERATOR
Thank you.
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