Indian assets doing well; hopeful of few launches in US: DRL

For the first quarter ended June, Dr Reddy’s Laboratories missed estimates on all counts. Revenue declined 14 percent to Rs 3,222.5 crore in the quarter ended June 2016 from Rs 3,752.2 crore in same period last year.

The consolidated profits fell sharply by 76.3 percent year-on-year to Rs 153.5 crore, impacted largely by US business and weak operational performance.

Abhijit Mukherjee, COO, Dr Reddy's, in an interview to CNBC-TV18, spoke about the quarterly earnings and the business outlook going forward. According to him going forward the name of the game would be launches. They hope to see few launches in the US, while in India launches are already happening, he said. Below is the verbatim transcript of Abhijit Mukherjee's interview to Nisha Poddar on CNBC-TV18. Q: One of the key disappointments really this quarter was North America business which has declined about 16 percent year on year (YoY). What is the kind of pricing pressure you are facing there and what is your guidance on the US business as well. A: Earlier quarter when I was asked this question and we were able to give a fairly satisfactory answer our overall erosion was in low single digit compare to the industry which was witnessing higher at times, we are fortunate. At this quarter it all played out in a pretty deep and harsh way in several of our assets seeing competition and it played out in Vidaza, in Dacogen was anyway seen some competition, Valcyte was a three major ones and of late Imitrex generic as well. Now this is one of the major reasons that the harsh impact on the North American business. On the approval you asked, we just launched one after a long time so this has been a long, long wait because of the various issues, transfers to other sites and all and hopefully this quarter we will see a few more, but having said that the major headwinds which we saw through erosion of assets in North America, the very heavy remediation cost. Third is Venezuela market we have stopped dispatching and the ruble crash. Everything more or less what we could foresee played out this quarter and that’s probably the reason for what you saw. Q: Would you say that this quarter was probably one of the worst that Dr Reddy’s has really reported and remaining quarters will be better you think, is what your guidance also is suggesting. A: Guidance we don’t provide as a policy and I wouldn’t be able to change the policy. Overall we have more or less reached the bottom of the trough and we will keep building. The name of the game would be the launches, and as we keep launching product it is easy to quantify, you will probably able to add up the figures and see how we sort of get back. Certainly one thing we can confirm that about USD 40 million we spent on remediation about one-third of that roughly give or take in this quarter. So that has now tapered off with this quarter, hopefully that’s not there and we have more or less done with all our commitments. So if you add all that up you will be able to sort of predict yourself where you will be, but this is more or less bottom of the whole journey. Q: The other geography that really slowed was India in the last quarter. What was the impact of National List of Essential Medicines (NLEM) and also the fixed-dose combination (FDC) drugs, though there is a stay order and what is the future run rate looking like now? A: In India, like all companies we also have got affected and annualised impact of the NLEM etc is about to the tune of about roughly Rs 90 crore which is a lot, but this quarter also saw repeated sort of changes in the NLEM all sort of various things which came out and that caused confusion in the market and the trade was a little hesitant to take products, so all that impacted, that led to this 10 percent growth. Overall, I think our assets are doing well, launches are happening. You see the whole IMS figure has also dropped almost to a single digit growth of the market these days. Compare to the market MQT we are ahead by 3 percent. Q: Was there any one offs in the margins that we saw last quarter. A: The margins as you saw the gross margin dropped this quarter and which is largely to do with the North American assets, couple of assets in Europe though not to the same scale, but we had some upsides last year which got sort of nullified to a certain extent. Q: Have you really completed remediation of the 3 plants with the warning letter, what is the update on that one? A: As I mentioned in my last conference call that we have responded in all the deficiencies and now I think in a few days we will be requesting for the re-inspection of the plants, so we are on our way to send the letter out for re-inspection of the plants, that’s the current status. As far as the remediation is concerned we have completed most of the commitments, few areas where deeper institutionalisation of practices would happen will continue, but by and large we are done and we feel good about it, so we will now invite the agency for re-inspection. Q: When you do you expect to begin resupplying to the US from the 3 plants you think? A: Time wise it will be difficult to make a commitment, each of these things has particular schedule for agency to come and we hope the audits will go well, so anyway the most of the assets the more important question is the more the assets which are likely to get approval from these sites in the near future we have de-risk by taking into other facilities and the recent one is one such example and more to come. Q: Has there been any improvement in the operations in Venezuela. Will you really begin recording sales from that market at all, because that has been a real drag on your books as well? A: We have enough orders on our hand and we can only dispatch when we can get cash and that’s our internal control. The past we have already provided as we mentioned in the last quarter it’s all cleaned up and now we wouldn’t dispatch anything unless we get a commitment from an international banking system. So orders are on hand, but we wouldn’t be able to commit when that will commence.