Good day, and welcome to our quarter 2 fiscal year 2026 earnings conference call for Dr. Reddy's Laboratories. I'm Aishwarya Sitharam from the Dr. Reddy's Investor Relations team. I will now turn the conference over to Richa Periwal.

Thanks, Aishwarya. Good morning, good evening, and a warm welcome to all. We hope you had a joyful and safe Diwali celebrations with your loved ones. Thank you for joining us for Dr. Reddy's Laboratories Q2 FY '26 Earnings Conference Call. We truly value your time and participation. Joining us today are members of the leadership team. Mr. Erez Israeli, CEO; Mr. MVN, our CFO; and the Investor Relations team. Earlier today, we released our quarterly financial results. These are now available on your website for your reference. We will begin today's session with MVN providing an overview of our financial performance for the quarter. Following that, Erez will share his insights on key business highlights and our strategic outlook. We will then open the floor for questions. Before we proceed, please note that this call is the proprietary material of Dr. Reddy's Laboratories and may not be rebroadcasted or quoted in any media or public forum without prior written consent from the company. This session is being recorded, and both the audio and the transcript will be made available on our website shortly. 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. Finally, a reminder that the safe harbor provisions outlined in today's press release apply to all forward-looking statements made during the call. With that, let me now hand it over to MVN to present the financial highlights for the quarter. Over to you, MVN.

Thank you, Richa, and Aishwarya, good evening, and a warm welcome to all. Thank you for joining us on our Q2 FY '26 earnings call. I'm delighted to take you through our financial performance for the quarter. We delivered a steady performance in Q2, achieving near double-digit growth despite lower Lenalidomide renamed sales. The acquired consumer health care business supported the top line momentum. EBITDA margin stood at 26.7% for the quarter. All financial figures in this section are translated into U.S. dollars using a convenience translation rate of INR 88.78, the exchange rate prevailing as of September 30, 2025. Consolidated revenue for the quarter stood at INR 8,805 crores which is USD 992 million, a growth of 9.8% year-over-year and 3% on a sequential basis. While U.S. generics faced product-specific price erosion and lower Lenalidomide sales, overall growth was supported by the integration of the consumer health care business and double-digit growth delivery across other markets aided by favorable foreign exchange. Consolidated gross profit margin for the quarter was 54.7%, a decrease of 492 basis points year-over-year and 223 basis points sequentially. The decrease in margins during the quarter was due to lower Lenalidomide sales and product-specific price erosion in the U.S. generics. Onetime inventory provisions from the discontinuation of certain pipeline products due to technical challenges in the lower operating leverage in PSAI business. Gross margin was 59.1% for global generics and 18% for PSAI. The SG&A spend for the quarter was INR 2,644 crores, which is USD 298 million, an increase of 15% year-over-year and 3% on a sequential basis. The year-over-year increase was primarily driven by focused investments in the acquired NRT consumer healthcare business and in branded generics, which are key to driving sustainable growth. SG&A for the quarter includes a onetime provision of INR 70 crores for a VAT liability in one of our subsidiaries and charges related to a discontinued pipeline product. SG&A spend accounted for 30% of revenues during the quarter and was higher by 132 basis points year-over-year and similar levels on a sequential basis. Excluding the one-offs related to VAT provision, SG&A expense as a percentage of revenues was at 29.2% in Q2 FY '26. The R&D spend for the quarter was INR 620 crores, which is USD 70 million, a decline of 15% year-over-year. And broadly, flat sequentially. The decrease was due to reduced development spend on biosimilars during the quarter as major investments for abatacept have already been completed. We continue to make focused R&D investments in complex generics, APIs and biosimilar pipeline while pursuing strategic collaborations to bring innovative assets that support sustainable long-term growth. The R&D spend was 7% of revenues for the quarter, lower by 203 basis points year-over-year and 26 basis points on a sequential basis. Other operating income for the quarter was INR 267 crores, higher than INR 98 crores in the corresponding quarter last year. This was mainly on account of product-related IP settlement income in the United States and onetime reversal of INR 88 crores in liabilities related to the discontinuation of the pipeline product. EBITDA for the quarter, inclusive of other income, stood at INR 2,351 crores which is USD 265 million, an increase of 3% on year-over-year and a sequential basis. The EBITDA margin stood at 26.7%, lowered by 174 basis points on year-over-year and flat sequentially. Adjusting for the onetime VAT provision mentioned earlier, the underlying EBITDA margin was at 27.5%. Impairment charge was INR 66 crores, including INR 54 crores for property, plant and equipment at our Middleburg facility following the discontinuation of the pipeline product, conjugated estrogen. The remaining charge pertains to product-related intangibles impacted by adverse market conditions. The net finance income for the quarter was lower at INR 77 crores as compared to INR 156 crores for the same quarter last year. The decline in net finance income reflects lower returns from financial investment following the deployment of cash reserves towards acquisition of the consumer health care business and other intangible assets in line with our capital allocation strategy. As a result, profit before tax for the quarter stood at INR 1,835 crores, that is USD 207 million. PBT as a percentage of revenues was at 20.8% on an adjusted basis, excluding the onetime VAT provision, the PBT margin was at 21.6%. The effective tax rate for the quarter was at 22.2% compared to 30% in the corresponding period last year. The ETR for Q2 FY '26 was lower primarily due to favorable jurisdictional mix for the quarter. The ETR in the corresponding period last year was higher due to reversal of previously recognized deferred tax assets related to land indexation following amendments introduced through the Finance Act 2024 to Income-Tax Act 1961. Profit after tax attributable to the equity holders of the parent for the quarter stood at INR 1,437 crores, which is USD 162 million, a growth of 14% on a year-over-year, flat on a quarter-on-quarter basis. This is at 16.3% of revenues. Diluted EPS for the quarter is INR 17.25. Operating working capital as of 30th September 2025 was INR 13,331 crores, which is USD 1.5 billion, an increase of INR 3 crores, which is about USD 0.4 million over 30th June 2025. CapEx cash outflow for the quarter stood at INR 511 crores, which is roughly USD 58 million. Free cash flow generated during the quarter was INR 1,046 crores, which is USD 118 million. As of September 30, we have a net cash surplus of INR 2,751 crores, which is about USD 310 million. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: USD 502 million hedged using a combination of forward structured derivative contracts scheduled to mature through December 2026. These contracts are hedged at the rate of INR 86.9 per U.S. dollar, RUB 4.28 billion hedged at a fixed rate of 1.03 per Russian ruble with maturity falling within the next 4 months. With this, I request Erez to take us through the...

Thank you, MVN. Good day, everyone, and thank you for joining us today. We are pleased to report a consistent performance in Q2 FY '26, marked by double-digit growth and steady profitability. This performance was driven by contributions across all key markets except for the U.S. generic business. During the quarter, we continued to make meaningful progress across our strategic priorities, namely growing the base, scaling our presence in consumer health care, innovative therapies, and biosimilars. We advanced our key pipeline programs, including semaglutide and abatacept. In addition, we have been driving initiatives to enhance cost efficiencies across our operations while simultaneously pursuing business development activity to support sustainable growth in the coming quarters. Let me now walk you through some of the key highlights of the quarter. Revenue grew by 10% year-on-year driven by broad-based growth across businesses, benefiting from acquired consumer health care and supported by favorable foreign exchange. Growth was partially offset by lower contribution from Lenalidomide and some price erosion in the U.S. in select products. The EBITDA margin stood at 26.7%. The ROCE for the quarter was around 22%. The cash flow from operations was utilized for our plant expansions and acquisition of strategic brands and securing rights for distribution in defined markets. We closed the quarter with a net cash surplus of $310 million, reinforcing the strength of our balance sheet. We strengthened our innovation-led portfolio through strategic collaboration and launches. We entered the anti-vertigo segment with the acquisition of Stugeron and related brands across 18 markets in APAC and EMEA from Janssen Pharmaceutica. In India, we strengthened our gastrointestinal portfolio with the launch of two novel drugs, Tegoprazan under the brand name of PCAB and Linaclotide under the brand name of Colozo. In partnership with Unitaid, Clinton Health Access Initiative & Wits RHI, we are working to make Lenacapavir, a long-acting HIV prevention tool accessible and affordable in low and middle-income countries. We continue to make progress on our key pipeline products. The subject expert committee, SEC under the Central Drug Standard Control Organization has recommended approval for semaglutide injection in India. We received a positive opinion from the European Medicines Agency Committee for medicinal products for human use for our denosumab biosimilar candidate. The U.S. FDA accepted our investigational new drug's IND application for COYA 302, a partner novel drug for the treatment of patients with ALS. We also made steady progress on integrating the acquired nicotine replacement therapy business. We have successfully integrated two-thirds of the business by value, including Canada, Australia, and selected key Western European markets. The next phase will include Southern Europe, Israel, and Taiwan. On the regulatory front, several inspections were completed across our global facilities. In September 2025, the U.S. FDA conducted a pre-approval inspection on our Bachupally biologics facility and issued a Form 483 with five observations. The agency recently issued a complete response letter in reference to the ongoing resolution of observations pertaining to the biologic license application (BLA) of our rituximab biosimilar candidate. We are actively working to address these observations. The U.S. FDA concluded a GMP inspection at our Mirfield API facility in the U.K., resulting in the issuance of a Form 483 containing seven observations. Additionally, our API site CTO-5 in Miryalaguda, in Telangana, as well as our Middleburgh facility in New York, were classified as VAI following successful GMP inspection by the U.S. FDA. The GMP and pre-approval inspection (PAI) conducted by the U.S. FDA in July 2025 at our formulation manufacturing facility, FTO-11, has been formally closed. We have received the EIR establishment inspection report with the inspection outcome categorized as VAI. We continue to be recognized for our industry-leading performance in sustainability. We retained our MSCI ESG Rating for A for the second consecutive year. Our ESG Risk Rating from Morningstar Sustainalytics improved from 23.6% to 18.4%, representing a lower ESG risk profile. Our waste management practices were recognized with the Diamond Standard for achieving 99.9% of waste diversion from landfills. Further, our formulation facilities at Srikakulam FTO-11 became India's first pharmaceutical facility to receive a Leadership in Energy and Environmental Design, Platinum Certification for existing buildings from the U.S. Green Building Council. Let me take you through the key business highlights for the quarter. Please note that all financial figures mentioned are reported in their respective local currencies. Our North American generic business generated revenues of $373 million for the quarter, a decline of 16% year-on-year and 7% sequentially. The performance was impacted by price erosion in selected key products, primarily Lenalidomide. During the quarter, we launched seven new products and expect launch momentum to continue in the second half of the fiscal. Our European business reported revenue of $135 million for the quarter, growth of 150% on a year-on-year basis and 3% on a quarter-on-quarter basis. The year-on-year performance was primarily driven by contributions from the acquired nicotine replacement therapy portfolio and new product launches, which offset the price erosion pressure. Excluding the NRT, the growth was 6% year-on-year and quarter-on-quarter. During the quarter, we launched eight new generic products across European markets, further strengthening our portfolio. Our emerging market business delivered revenue of INR 1,655 crores in Q2 reflecting a growth of 14% year-on-year and 18% sequentially. Growth was primarily driven by new product launches across markets and aided by favorable foreign exchange. During the quarter, we introduced 24 new products across multiple countries, reinforcing our commitment to expanding access and strengthening our market presence. Within this segment, our Russia business delivered a growth of 13% year-on-year and 18% sequentially in constant currency terms despite prevailing macroeconomic challenges. Our India business reported revenues of INR 1,578 crores in Q2, delivering a double-digit year-on-year growth of 13% and a 7% increase sequentially. This performance was driven by contributions from new product launches, improved pricing, and higher volumes. According to IQVIA, we have moved up one place to the 9th position in the India pharmaceutical market for the month of September and continued to outpace market growth with moving annual total (MAT) growth of 9.4% compared to IPM 7.8% growth. During the quarter, we launched 11 new brands in addition to the acquired Stugeron portfolio, further strengthening our domestic franchise. Our PSAI business reported revenue of $108 million in Q2 FY '26, registering growth of 8% year-on-year and 13% sequentially. During the quarter, we filed 37 Drug Master Files globally. We have further sharpened our R&D focus on programs that offer clear differentiation and strong commercial potential in alignment with our strategic priorities. We have rationalized a few pipeline products that face extended regulatory uncertainty, limited market opportunity, or increasing competitive intensity. Our focus is anchored around company generic GLP-1 molecules and biosimilars. In addition, we are actively pursuing strategic collaborations and partnerships to enhance our innovation ecosystem, accelerate development timelines, and expand our capabilities in emerging therapeutic areas. During the quarter, we completed 43 global generic filings. For the quarters ahead, we are focused on robust execution to deliver on our strategic priority, meaning growing our base business, focusing on our key pipeline assets like semaglutide and abatacept, improving operational efficiency and productivity across the value chain. And we continue to actively explore partnerships and value-accretive acquisitions that support our strategic vision and innovation momentum while enhancing our capabilities. These efforts are aimed at driving sustainable growth and delivering long-term value for our stakeholders. And with that, I will welcome your thoughts and questions as we move into the Q&A session.

The first question is from Neha Manpuria from Bank of America.

My first question is on the U.S. business. While I know you talked about product-specific erosion and REVLIMID quarter-on-quarter. One, should we expect any REVLIMID all in the third quarter? And second question on the U.S. business. You've seen a product discontinuation this year. Last year, we saw NuvaRing being discontinued. You continue to spend a fair bit on R&D. How should we think about the U.S. product pipeline? Because if I look at Reddy's approval history while we have got a fair bit of approvals, we haven't really got any meaningful large launch approval outside of REVLIMID and probably Vascepa was the last one that I can think about. So I just wanted your thoughts on how we should look at some of these more meaningful launches coming through now that conjugated estrogen has been discontinued. How do you think about the U.S. growth.

So just, Neha, I think there was some issue with the voice. Just the beginning of your question, I got the rest of it. Since the beginning of the question, I could not hear it sorry about it.

Yes. No problem. I was asking that, is it fair to assume that there would be no REVLIMID limit in the third quarter? Or would we still see some bits of REVLIMID as a part of the settlement in the third quarter?

We should expect to have some REVLIMID in the third quarter, although less than what we saw this quarter. It's likely that this will be either the last quarter for it or possibly a bit that continues into Q4. Overall, Q3 will include REVLIMID. Regarding R&D, I completely agree with you. We did try to get approval for certain products for a while, and when we didn't succeed, we decided to move on after setting specific timelines. Currently, the main products related to R&D in the U.S. will be the biosimilars, with abatacept showing significant growth. In terms of small molecules, we have several important products coming, primarily in peptides; while we missed the first to file for some, they are still significant. Our overall pipeline currently includes about 100 products, with around 20 categorized as complex generics. However, as we've mentioned before, predicting these products is challenging. Your observation is accurate; we are reevaluating our portfolio to concentrate on products that we believe have a good chance of being first to market as the timing allows.

Understood, Erez. If I were to extend this question to a sema filing or abatacept filing, what gives you confidence in obtaining approvals for those filings? Even with abatacept, considering we received a CRL on rituximab, I’m curious about management's confidence level regarding approval for sema in Canada next year as we consider abatacept.

Regarding abatacept, we plan to submit the Biologics License Application by the end of December this year, and I am quite confident about achieving this target. It is crucial for us as it will allow us to launch the subcutaneous formulation, which is the more significant product, at the beginning of 2028, pending the outcome of the intellectual property settlement. My confidence stems from our collaboration with Bachupally and the fact that we will also have a Contract Manufacturing Organization in the United States to produce the product. I'm less worried about the European approval since Bachupally has already been approved in Europe, but we are still awaiting approval from the U.S. FDA. Additionally, we are uncertain about the potential tariffs on biologics, though we feel more comfortable that tariffs are unlikely based on current media coverage. However, we need to wait for the guidelines to be released. If we can't launch from Bachupally, we will still have the option to launch from the United States, which also allows us to manage potential tariff challenges. As for semaglutide, we expect feedback from Health Canada in the coming weeks. The response could come any day now, and we are hopeful about its efficiency. I am confident that we will be able to launch all 12 million pens discussed previously. If it doesn't happen in Canada, we have plans for other markets. The launch will take place; the main concern is whether we will receive a Complete Response Letter or some other communication from Canada. Pricing may vary, but I am assured that we will sell the product, although I cannot promise that we will avoid receiving a CRL.

The next question is from the line of Damayanti Kerai from HSBC.

My first question is again on semaglutide. So Erez, can you remind us of the legal status, which was underway in India, litigation with Novo on semaglutide?

Sure. We are challenging the patents in India, and it's currently in the high court in Delhi. All the hearings were done, and we are waiting for the decision of the judge. We don't know exactly when she will submit her decision. And likely that we ever will not like the decision will appeal. So likely that it will continue after but at this stage, the hearings are done, and we are waiting for the outcome of the decision of the judge.

Sure. And just to clarify, this outcome should not be impacting your plans in the ex-India market, right? The markets outside of India?

Depends on what the decision of the judge will be. What we are seeking, we believe that the patent is invalid. And in any case, as we speak today, by the decision that was done in May, we can produce and export, not to do it in India, but the court in the decision back in May allowed us to continue to make the product and to export it. In the current state, we can launch in India only at patent expiration, which is right now dated to March '26.

Okay. That's clear. My second question is going back to abatacept. So just clarifying earlier discussions. So did you mention you have a CMO in place to manufacture that product in case Bachupally takes some time to get the clearance from the FDA?

Sure, I mentioned that we will have a contract manufacturing organization in the United States to produce abatacept, along with our existing capacity in Bachupally, India. This approach mitigates three risks. First, it prepares us to launch from already approved FDA sites in America if we face another Complete Response Letter or any regulatory challenges. Second, it addresses potential tariffs or other regulatory burdens related to manufacturing or selling biosimilars in the United States. Third, it increases our capacity, allowing us to handle a larger market share. Therefore, we are definitely opting for the contract manufacturing option in the United States.

Okay. That's helpful. And my last question is for semaglutide. I understand you're working on your in-house fill and finish capacity. So can you share the update on that project?

It's going on. It will not impact the launches in the next 12 months because by the time that we will have to submit and qualify it will be post-approval in all the countries. So we are working with the partner that we have today. This is the famous 12 million units that we discussed in the past. This is still relevant and maybe with some upside. But right now, I think we are about the same range. And this will happen with the current partners, but we will have two cartridge lines in FTO-11. This will be significantly expanded capacity to many more millions. But let's see that we can say in that respect, it can go to even up to $50 million, but it's all theoretical at this stage. It will be relevant not for the next 12 months, but for the period after that.

The next question is from the line of Dr. Bino Pathiparampil from Elara Capital.

First question on the India market. India business had a strong growth in the quarter. Is there anything in particular that helped you? And was there any impact related to the GST disruption in the quarter?

Yes. So we managed well the GST. So the GST was not a significant obstacle for us. We managed that well. It's just execution of our strategy, the way we discussed it for many quarters. We identify the therapeutic areas that we want to focus on. And we made several inorganic moves to buy brands that allow us relevant access as well as licensing of innovative products. Just working well and it's likely to continue. We said all along that we believe that innovation will allow us to outpace the market, and we feel very, very comfortable now about that strategy. I think more and more people see that now.

Understood. You have recently done this acquisition of the Stugeron brand from Janssen. Can you give some idea about what sort of revenues does that business have in its acquired form?

So it's 100 plus in terms of size, something like that.

$100 million?

No, INR 100 crores, this is in India.

In Delhi, in India.

Yes, India.

That is India.

Bino, India and emerging markets put together.

Is INR 100 crores. And for that, if I'm right, you paid USD 15 million.

Correct.

Okay. Understood. And any benefit of that in the growth for the quarter is some 20 days of that part of the India business?

Not much.

No, no, it was very...

Insignificant.

Yes, you can take it as no real impact.

Got it. And my last question on the margin outlook beyond REVLIMID. Of course, we keep asking this every quarter. But if you look at the current quarter, even with Lenalidomide, if we remove the other income from the EBITDA margin, it is below 23%, and with Lenalidomide further coming down in the next quarters, it may fall even further. So do you still fully stick that for the full year FY '27, you will get back to a 25% EBITDA margin?

I'm not sure how you got to the 23%. I'm aware of 26.7%. But never mind. Yes, absolutely. Lenalidomide is with higher margin, everybody knows that. And naturally, it's impacting and anticipating that we are discussing for four years. We knew exactly when Lena is going to go. And it's happening exactly as we discussed. We are addressing it with the lever that I mentioned, growing the base, contain the cost of business development and focus on these key products. I absolutely believe and I'm maintaining it that in the next two years we will absolutely get back to the growth and to the margins. The question is, what will be the journey in this point in time. The more sema we will have, the more growth we'll have, the more business development we'll have, we can actually do it much, much faster. So we are maintaining our commitment for the margins, we are maintaining our commitment for growth. The question is, what will be the scenarios between sema, abatacept, and business development primarily. And of course, because on the levers that we can control better, we are very confident that this is the base and the cost.

The next question is from the line of Saion Mukherjee from Nomura.

My first question is on the U.S.-based business. There has been a lot of price erosion over the last three, four years since you have launched REVLIMID how is the base today versus, let's say, before REVLIMID? Is it up, down? If you can give some color so that we get a sense where we should assume the number post-REVLIMID?

Sure. So it went down. It went down primarily not so much on volume. There were some products, about I think five that faced competition and price erosion, and that's what took it down. It's not significantly down. Most of the decline that you see is Lena, Lenalidomide but if you want to compare, it is down.

And do you see it sort of stabilizing now from the current level? Or do you think there is scope for further price erosion? And if you can just give some color on the pricing dynamics in the U.S. at this point? Anything has changed?

No, no change. I think it's stabilized. And I believe that it stabilized also for a while. We saw the products here and there, but yes, I don't foresee additional trends like that in the coming quarters. On the base products. The erosion that will be will be on some of the launch products, the products that we launched, those can still face erosion because not all of them have exhausted their potential erosion but it's insignificant as we speak.

Okay. My second question is on sema, this $12 million that you mentioned, you feel confident about selling. So if not in Canada, where will this volume be absorbed in your view, which market?

We plan to secure approval in the next 12 to 15 months in 87 countries, primarily small ones. Aside from Canada, key markets will include India, Brazil, and Turkey. We also have partners selling in various Latin American countries, so I can't pinpoint a specific market. In Asia, our B2B partners are preparing their own launches, and we have collaborations for both the API and finished product. I believe the main markets I mentioned will capture the majority share, depending on our launch success and timing, with the remainder covered by B2B partners. The mentioned markets fall into two categories: COPP countries and non-COPP countries, which will influence the order of our approach. Based on the existing demands and orders we're discussing, I am confident that if approvals are granted, we will be able to sell effectively.

Erez, if I can just add, like this is for 2026. Now what about 2027, how does this 12 million move up in 2027 in your estimate?

It can increase up to 15 for sure, but it may go even higher. This depends on the product's development and the qualification of FTO-11, which is expected to significantly increase capacity in the second half of 2027. I'm referring to the calendar year, not the fiscal year.

The next question is from the line of Madhav Marda from Fidelity International.

I wanted to understand if we have delivered double-digit growth in the ex-U.S. markets. Are we confident of maintaining this trajectory over the next one or two years? That's my first question.

Yes, very much.

Okay. And could you highlight any key drivers? Like do we have like new launches lined up, what can help that steady growth? Because India especially 13% was quite a good number, so just wanted to understand what could drive it.

So each one of the markets, we have different drivers. So if you want, I can highlight the markets for you, the main markets. In Europe, it's primarily a combination of the NRT business, the leverage of the U.S. portfolio in which the pipeline is coming up and the launch of the biosimilar rituximab, denosumab, and bevacizumab that we had in the U.K. In the case of India, it’s obviously the primary focus of our inorganic move that we made on innovation and the acquisitions of brands that we did in addition to a normal growth that we had on the legacy pipeline. So I always mentioned that in India, our legacy pipeline will be like the market and what we are adding value is in the places in which we are bringing products better than the standard of care. This is the strategy, and now that we are accumulating enough of those, it's starting to be shown. It took us, I say, I'm sure we all remember quite a few years to build that. In the emerging markets, it's primarily again leverage of the generic business, especially on injectables and oncology, as well as biologics; all of our biologics are going to emerging markets. And in each one of them, we have SLA depending on the market, selective innovation that we also licensed as part of our deal with India. In the case of Russia, it's primarily our legacy brands as well as some licensing and acquisition that we made in Russia on both the OTC as well as the RX. API is primarily the focus on peptides. And on both, there is also a lot of demand for the peptides on the API side. I hope I covered the markets for you; if I forgot something, please...

Make sense, and my second question is just on abatacept. You said we can submit the BLA by the end of calendar year '25. So the Phase III trial, I'm assuming is complete now, and we're expecting sort of an update on that in terms of whether that's completed successfully? Or how should we think about the progress on the trial itself?

It should be completed very, very soon and so far so good.

The next question is from the line of Dr. Kunal Dhamesha from Macquarie Capital.

Just the first one on abatacept. So basically, the first filing that we'll do would be for the IV version, right?

Correct.

And what kind of the further development, the subcutaneous version would require?

Can you repeat, sorry?

For the subcutaneous version, what further developments would be required?

There is another set of tests that allow us to submit the subcutaneous version, but it doesn't require an additional study.

Okay. So no Phase III, but some form of characterization, et cetera?

Correct.

And the first filing that we'll do by December 2025. Would that include Bachupally as a manufacturing source or the CMO as a manufacturing source?

Bachupally will start. And the CMO will be a tech transfer from Bachupally.

Bachupally will still be our key facility.

Yes. But in the United States, I absolutely believe that we will be able to be, especially for the subcutaneous version, the CMO will be enabled as day one launch. The mitigation that we discussed before.

Sure. Regarding semaglutide in Canada, has your expectation about market formation changed since we last spoke during the Q1 earnings call, especially now that the patent has expired and more filings have been accepted by the regulatory authority in Canada?

No. So nothing changed, at least from my perspective, just to make sure that we are expecting in the market to be competitive. There will be multiple players. The question is just the day they will get approval. So it's all about that. That did not change. I believe that the market formation will be as expected. Once there is approval, there is an application for reimbursement. And according to the rules in Canada of the pricing, that's how the market will play. So nothing changed in the way I think the game will be played; it's now about obtaining approval and obtaining a good outcome from the litigation in India.

Sure. Lastly, regarding India for semaglutide, we have conducted a trial for Ozempic and Rybelsus. Does that enable us to launch the weight loss version, which is the Wegovy generic as well?

For Wegovy we'll have to have an application by itself. We'll have to...

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Sir, just on a steady, robust traction of biologics across European markets and Indian market, if you could just highlight how much has been the total biologic sales across different markets on an annualized basis to date.

I'm sorry, your voice is too low. Just to make sure you asked how our sales evolved in India and Europe?

Biologic sales, cumulative biologic sales across different markets.

The market or for us, I'm sorry. So we launched in Europe, hopefully, I'm answering it correctly. We launched in Europe bevacizumab and recently rituximab in multiple countries, and we will increase the numbers of the countries as time goes by. And this is after we got the recent approval for rituximab for Europe. In India and emerging markets, we were always there. So it is going well. The main program that we will launch in Europe will be denosumab and abatacept. This is the main pipeline. The same product, obviously, will be launched in India and emerging markets. But in India, we'll also have pembro as well as nivo. So right now the plans in those countries.

And sir, with respect to rituximab, now that we are thinking of having a CMO, will that require at least the stability data from CMO side and hence maybe more time to sort of get through the regulatory process?

The CMO that I mentioned is for abatacept, primarily for the subcutaneous version, and it will require a tech transfer as well as stability. But we believe that we will be able to be ready for the big quantities, which will be in the beginning of calendar '28. So we should be good by then.

The next question is from the line of Kunal Randeria from Axis Capital.

So firstly, I would like to understand how your R&D will take shape given that you're developing a few biosimilars like pembrolizumab and daratumumab. And of your R&D budget, how much you would be earmarking for biosimilars and Aurigene. So basically, your non-generic business.

So just to clarify, daratumumab, we are now developing. It's a product that we licensed from Helios from a Chinese company. Denosumab was developed by Alvotech, and we have a partnership with them. So in that respect, the main products that are done internally is still abatacept that we have basically finished the clinic of it. As you can see, the R&D is about 7% right now of the sales and likely that it will stay in this range for now.

Sure, sure. And secondly, again on semaglutide. So do you foresee a situation where the market may not turn out to be as favorable as you think in Canada because besides the number of filers, which are increasing by the day, there are perhaps risks, let’s say, from a compounding pharmacy, which is intending to enter Canada and even the innovator has seen volume pressure in several markets. So there might be a situation where they are aggressive on pricing. So is there a risk of the market deterioration?

First of all, I mentioned all along, I think that the Canada market will be competitive with multiple players. So I also now in 33 years within pharmaceuticals, I learned not to forecast launch. I always mentioned that it can range from 0 to many, many millions of dollars. But yes, the answer is I anticipate that Canada is going to be very, very competitive. I anticipate that Canada will be very, very competitive as players get approval.

I would like to ask if there is any specific price erosion we might anticipate from the current levels, perhaps around 80% to 85%, and if it will eventually stabilize.

I have no clue. I wish I did.

The next question is from Vivek Agrawal from Citi.

My question is related to NRT and branded markets like India, EM. So the growth was quite decent across the board and really a commendable job. So just want to understand how to look at the investment that you are making behind these markets? Or are these sustainable investments or, let's say, it can be cut down in future?

First of all, I don't think you see the investment in emerging markets. As we speak, we have certain market segments covered. The markets we haven't penetrated yet are still managed by Haleon, for which we are paying them a fee. Naturally, as we gain market share, the fee for Haleon decreases, leading to improved margins since we no longer need to pay them. We are starting to invest in our initial markets, specifically the U.K. and Scandinavia. Currently, my situation is far from stable, as we have two more phases to complete before we settle. So far, the results are exceeding our expectations regarding growth pace and margin performance. Both have outperformed what we initially projected during the project approval process. Overall, I would describe this as a strong start.

I understand, Erez. And just a related question here. It's on OpEx basically. So on an absolute basis, how we should look at the OpEx in FY '27? So can it continue to increase, let's say, from '26 level, maybe relatively at a lower pace? Or is there any possibility of absolute decline in OpEx, let's say, in '27 compared to FY '26?

So Vivek, if you look at this quarter, we have it at 30%. And then if you adjust the one-off, I think we are close to 29.1% and then for any modeling, I think we'll be in the zone of like 28% to 30%.

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

Just on rituximab again. So given this is the second successful PAI and CRL that we've had, are there any specific challenges related to the specialty? I'm asking also because this is a biologics facility and our track record, otherwise on compliance has been quite excellent in recent years.

There are no specific issues to report at this time. Since this is a sterile facility, we have some inquiries related to the site's characteristics, which we believe we can address. If additional questions arise, we will submit our responses. We have an alternative line, FFF 2, which we consider a backup. This line is designed for filling and finishing, and if the primary line, FFF 1, does not perform well, we may need to transfer the product to FFF 2. The concerns primarily stem from the design of FFF 1, which raised those queries. We are currently addressing this, and if necessary, we will switch to FFF 2. I'm confident we will receive approval. Just as a reminder, we intentionally selected rituximab to initiate the regulatory process on schedule to ensure that when abatacept arrives, we can handle any challenges it may present. This strategy is working as planned, and we hope to resolve these issues soon.

Okay. A quick one on tocilizumab biosimilar. It’s been a while since we got an update on that one. Can you share the status of that program?

We are not planning to have it as a global product. We will have it only for India.

Yes. And then one quick follow-up on the previous question. The cost reductions that we have alluded to in the past, 500, 600 basis points of reductions. Are these reflecting to a small extent in the first half numbers? Or should we wait for the coming quarters for this to actually reflect in the numbers?

Yes, I believe so. You can see that despite the fact that Lena is going down, we are maintaining our reasonable numbers. So it's absolutely a reflection of those mitigations. Of course, the full force of it will come as quarters will come. And we have also shared the numbers. So we believe that with SG&A of around 28% and R&D of around 7%. It comes to the famous 5% to 7% that we set, and there is even opportunity for more if we need to. So we maintain that we are very, very sensitive to the margins. And naturally, we're discussing it every time, and we will absolutely be really disciplined on those.

Next is Gautam from Leo Capital.

My question was on the GLP-1. Do you only plan to do fill and finish or do you also manufacture API drug substances? How much manufacturing capacity do you have? And which markets are we targeting for this?

We have CTO-6 developing the API. I mentioned that the potential of our investments could reach up to 800 kg, but we are currently far from achieving that output. We are preparing not only for semaglutide and liraglutide but also for over 40 peptides that we have identified and will develop either independently or with partners in the coming years. At the moment, we will have enough capacity to meet the demand for liraglutide and semaglutide in submissions to relevant authorities for all peptide patents, including tirzepatide, which will be an R&D project but is essential for submission in relevant markets. We are also planning production in FTO-11 and with partners. Overall, our approach will ensure that we have in-house capabilities and partnership capabilities for every significant product to mitigate risks.

Okay. So can you just expand on the fill and finish also what’s the capacity we have and the status on that and the markets we are supplying for that?

I think we discussed it. We have 12 million pens for the semaglutide with the partner. We can reach even 50 million with two lines of cartridges, but right now that’s theoretical. The cartridge lines are in progress and will be assembled and ready, not in the next 12 months, but afterwards.

The last question for today comes from Sumit Gupta from Centrum Capital. Suma, please go ahead.

Yes. So just one question on the Indian business. So sir, can you segregate the volume and price growth?

The volume and the price.

So Sumit, the price is like in the range of normal 5%, and then the balance growth is mainly from the new products and volumes.

Okay. So going forward, like should we expect this to continue? Or can we expect any significant growth in volumes also?

You should expect it to continue; we will have new products volume, and the price will be in that range that MVN shared with you.

We reached the end of the call. I now hand the call over to Richa for the closing comments.

Thank you all for joining us today. We truly appreciate your continued interest in Dr. Reddy's Laboratories and the time you've taken to engage with our Q2 FY '26 results. If you have any further questions or need any additional information, please do not hesitate to contact the Investor Relations team. Have a great day. Stay safe and take care.

Thank you.