My first question is on tariffs. Erez, given you speak to the policymakers and customers, what is your sense on the extent of tariff or to what level the tariff could be implemented on generics? Could it be in the API? Could KSMs be included? And the second part is, given that Reddy's does not have any manufacturing in the US, what are the mitigation factors that we are looking, in case tariff is implemented for generics?
Thank you. First, obviously, I wish I knew when and how much tariff will come. We are preparing ourselves for the scenarios, and we are, obviously, watching carefully the information as it will come. At this stage, the main effort is to ensure sustainability of supply. So the main activity, as we speak, is to work closely with our customers and see what is the need, in terms of future inventories as well as new product demand, identify products that may have supply disruption and try to help them to address it. We are all waiting to see what will be the new policies and accordingly, we will address. If the country of origin will be based on API or forms, I don't know. Most of the people believe that it's for API, but we will need to wait and see for formal communication in that respect. As for the production footprint in the US, I don't think that at this stage, the generic industry is having a short-term issue here. As a company, we would love to have a footprint in the United States. It just has to be the right asset. We are always looking for an asset, but we are not going to do, at this stage, specific activities to build footprint. If the right opportunity will come to us, we will be more than happy to engage it.
My second question is on our cost base. MVN, given that our cost base has ballooned quite a bit, even though our margins are healthy, as we look at gRevlimid cliff three quarters out, how much flexibility do we have to actually reduce this cost once gRevlimid goes away? So just trying to get to how we get to the 25% margin. I know you have a lot of products, etcetera, which will come through. But from a cost perspective, how much flexibility do we have from an R&D and SG&A perspective to reduce cost?
So, the gRevlimid's patent cliff will happen in January 2026. Based on our current modelling, we will continue to have, based on what we have guided, sales double-digit growth and then EBITDA & RoCE 25% and above at this point of time. [On R&D and SG&A levels] Yes, yes, R&D and SG&A will be in the similar zone. I think the SG&A now is like somewhere 28% of the sales, R&D is 8.5% would be in the similar zone. [Erez adds]: So, Neha, the main way to do, is we are planning to just grow faster the sales than the expenses. This is one main, and we have the levers to do that in all the relevant markets. First, we are planning to grow the base significantly faster than the expenses, while using all kinds of productivity measures on the cost. It's not a cost cut. It's all kinds of productivity measures. And of course, we are planning to have some nice products that are coming up, both semaglutide as well as the biosimilars that will come. And business development (BD), we are planning to continue to do BD, and we are engaging with quite a few opportunities mostly likely. So the combination of all of that, I believe that will help us to grow, cover also from the potential decline because of lenalidomide and to keep our margins.
Could you help us maybe understand the sizing of the generic semaglutide opportunity for us in markets such as Canada, Brazil, and the other larger Emerging Markets (EM) where it goes off patent next year? We, obviously, have invested in capacity for generic semaglutide. And, what we understand, looking at penetration rates in, let's say, Canada or Brazil, it is severely underpenetrated, because supply was short and obviously, it was at a very much higher price point. So, as some of these product supplies comes through and prices go down, how do we see the volumes expanding for this product, let's say, in Canada and Brazil?
Yes. So naturally, Canada is one of the markets that will open early. And what's stopping the people from launch is that exclusivity that will be finished in the beginning of January of '26. The product, to the best of our knowledge, based on the marketing report is growing nicely. And at least, in according to IQVIA and the financial reports, the market is around $1.8 billion, which suggests that it's around, give or take, 10 million pens. So, it's a very nice market. The CAGR is big. In some report, I saw 28%, in another report, I saw 39%. It's a very, very high level of growth naturally. And, when we saw the prevalence of the disease, versus the use, comparing to other markets, it looks like that in Canada, there is room for growth also quantity-wise. So, it's an interesting market. And once the IP landscape will allow us to launch it and assuming approval, we see ourselves as one of the companies that have the opportunity to be first or among the first in Canada. We are planning to do the same in India, in Brazil and the other markets, in accordance to, of course, to whatever the IP landscape will allow us.
So, the 10 million pens which you mentioned, that's the Canada market size today, right? That's at a much higher price. So, would you have any sort of sense, in terms of this 10 million pens - given that if you look at the obese population or the diabetic population in Canada - the size of the potential market can be, maybe, 3x, 4x, 5x. Could you give us some sense of how the market could grow?
Yes. What I quoted to you, the numbers that I mentioned are the relevant reports about Canada. Yes. So, I heard 5x, but my knowledge is not different than yours. They probably read the same report. The prevalence is still high. The use relative to the prevalence is still low. Now, is it 3x, 4x or 5x, I don't know eventually what will happen. But clearly, that it is going to be an important product for Canada, and obviously, we are very keen on it.
Following up on gRevlimid, Erez, are you seeing any significant price erosion in gRevlimid as of now, compared to 6 months back?
So, there is price erosion. There is also increase in quantity. So, it's a combination of both. I will not be able to tell you exactly the amount, as you know. But yes, there is a certain level of price erosion.
My first question is on the R&D spend front. What we have seen in the last two-year period, sir, there is a back-to-back ~20% growth annually on the R&D spend front that we have witnessed. So, could you give some visibility about the work that we would have done on the pipeline build-up front, and the likely investment on the R&D side going ahead? And what build-up that we would have created so far as the future pipeline or the growth pipeline for us?
So here, of course, the R&D investments have been increasing in biosimilars. Like, for abatacept which is in Phase III, certainly, the investments are high. And then in case of our generics, we are continuously focusing on all the GLP-1s. I think, these are all the complex molecules and require a lot of investment. And Erez also had earlier spoken, that abatacept, once we file it, the revenues starts in calendar 2027. So, you will just see the revenues from all the efforts what we are doing now, certainly, a little later, it is not very far off, but definitely in the near term, you will see some of the products will start showing up the revenues.
When I look at the European revenue for us, it sounds like UK has grown very fast. Is it because we have started selling NRT out there? And the NRT number which you give out, ₹1,200 crores, can I double that just to get the whole revenue for the full year? And the last question on gRevlimid. When we speak to Natco, they say that June, September could be a better quarter in FY26. Does it hold true for us also?
So, you know I cannot share numbers or guidance on gRevlimid. So I can only say, like we always do, that it's going to stay a meaningful product for us. As for the UK, it is primarily due to relatively high level of launches of new products, plus we launched bevacizumab, also, in United Kingdom. So, the combination of both allowed us to grow in the UK. [MVN on NRT]: Yes. Certainly, give or take, that would be the range. Yes, yes. Currently also, we are selling in UK and going forward also, we will continue to sell in the UK. But what the numbers we are reporting for UK are without consumer health.
And based on your conversations with customers, would they be open to absorbing an impact of any potential tariffs, depending on how much it is? What's your sense of who bears the burden in case of the tariff?
My sense is nobody wants to absorb the tariff. At least, I did not find any player that says 'yes, I would love to'. I think what will happen is there will be a certain adjustment period in which people will have to work together to see what to do with it. So, it is primarily about working together. What I want to emphasize is that under any scenario, we will not create shortage of supply or supply disruption to the US market. This is very, very important to us. We want to stay in the United States for many years. And that's something that was also clarified in all of our discussions with our customers.
And when you say double-digit growth, I assume is ex-gRevlimid?
Yes, we believe that FY26 double-digit growth is possible as well as maintaining the margins.
The first question on the gross margins, which has changed quite a bit dramatically on the Q-o-Q basis, and we have highlighted the reduced operating leverage. But as far as I see, our revenues have grown, right? So, I fail to understand how the operating leverage has worked the other way for us. Can you provide some more colour on that?
Thanks, Kunal. Here, one-off costs in this quarter are there as part of the manufacturing overheads, as per our policies, that's where it is impacted adversely. Like in the Shreveport plant we divested, we have had a severance cost. That is a onetime cost that impacts, which is part of the manufacturing overheads. The second, I articulated earlier, as compared to Q3, in Q4, our out-licensing income is lower. That will have a direct impact on the gross margin. That's why it is 300 basis points lower in this quarter. We believe this would be a one-off and then we will go back to our normal level. [On quantification] That we have not given right now, but it's not a very small amount. Maybe, if I have to say, out of 300 basis points, manufacturing overhead - this is one, plus another, our accounting provisions also. Overall, it has impacted 0.8%; 80 basis points out of 300 basis points. Kunal, it is not the severance cost alone. There are other costs also. Yes, that is one. And, then, a little bit on the inventory also, there is an overhead. Overall, put together, that all happened in one quarter, that's why you see there is 300 basis points.
If I look at the NRT business, the PBT margin between the two quarters has a meaningful delta of around 500 basis points, right? So, is there a seasonality? And, when we look at this business on a full year basis, how should we think about this business? Because based on 2 quarters, it is really difficult for us to understand.
So, for this business, earlier we have also spoken, our EBITDA margin is in zone of 25%. And why the fluctuation between Q3 versus Q4 - there are a lot of integration costs, that's where it is impacted. Otherwise, when you are modelling, the EBITDA you can take it at 25%.
If you could provide an update on our or GLP-1 or let's say, generic semaglutide product across various markets and also the abatacept product?
Sure. So we are gearing up to launch it during the calendar '26, in all the markets that the IP landscape will allow us to launch. So, this is still intact, and we are progressing nicely in our preparation for that. As for abatacept, so far, so good. We are deep into the Phase III. And so far, it looks like the time lines are not changed. We were planning to submit the product somewhere in the end of this calendar year, end of '25, to be ready to launch the intravenous (IV), immediately after patent expiration. And the same for the subcutaneous, which will be coming a year later because of the patent related issue. So, once the IP landscape will allow us to launch it, we will do it. So far, so good. [Confirmation] Yes. The Phase III is going on, and we are planning to submit by the end of this calendar year, by the end of '25.
The first question I have is on the gross margin drop. Price erosion was one of the reasons given for the gross margin drop. So, is it possible for the management to give us some understanding on what the US business price erosion is for the year? And how the US business has done for the year, FY26, excluding gRevlimid?
So, this gross margin, the price erosion is on a year-over-year basis. And in US, I think, the price erosion is very stable. That's what we have put in the press release. We do not see any challenges even. In fact, the price erosion is like much lower during FY25 as compared to FY24. [Erez adds]: The US business grew. It grew very, very nicely. And, it's primarily due to the usual - new launches, market share gains. And, just to make sure that, in addition to what MVN said, the price erosion that was in the US was relatively low, primarily, as most of the products, I believe, exhausted the potential of the price erosion. So, it's normally when there is no price erosion in United States, it's not always a good sign. But, in our case, it was a very low single-digit price erosion within the fiscal.
Second question I have on gRevlimid. In FY26, I understand that January would be when the exclusivity is ending. But, if we consider the quota-related quantities which we would be booking before January, how should we expect the distribution to happen over the next few quarters? Is it evenly distributed? Or do you think that during the first half of FY26, we should expect gRevlimid sales to be booked?
So, obviously, it's in accordance to the demand of the customers, but likely that we will finish what we can sell a few months before January, in order to make sure that our customers will not be with the goods on the shelf, in order to avoid the shelf stock adjustments. So, likely that we will stop few months before that.
We spoke on Canada market related to semaglutide. However, traditionally, we have seen generics capturing the branded market, where the prescription is typically marketed by the innovators. However, here, the market is severely underpenetrated. Do you think there would be any need for you to market the product, despite it being a generic?
We believe that the demand from the customers will be strong enough that we don't need to market the product or introduce it to the market. What I believe can happen is that as the product will be much more affordable, and some of the use is without reimbursement, so, I believe that it will create an additional demand. But no, we are not planning to actively market the product as a brand.
And just to reconfirm what I heard earlier. I believe, you said that for financial year '26, you can do a double-digit growth and maintain the EBITDA margin at the same level of FY25. Did I hear that correct? And once the gRevlimid cliff happens, maybe in FY27, the margins may settle down back to your long-term target range of around 25% or so. Is that how we look at it?
Yes, that's what I said. Yes. So, we always said the 25% is indication for the place that we feel comfortable to be, giving enough total shareholder return, but also allowing us to invest in the future. So, we will continue to aim for that amount. It may fluctuate from quarter-to-quarter. Sometimes, it will be above, sometimes below. But yes, we are planning to be in this neighbourhood, also in the future and post the lenalidomide era.
And one last question on capex. So this year's capex was, I think, more than double the previous year's level. Where has it mainly gone to? And for next year, what's the level we should look at?
So, largely, the major capex is going in two fronts. One is for peptides, both to create infrastructure for both Active Pharmaceutical Ingredients (API) and formulations and also to create the biosimilar facilities. Largely, these two are major investment driving factors. Apart from that, certainly, since we are in the complex molecule journey, there are product-specific investments as well. So that's where, I think, it is overall capex. And then you are asking for FY26. We believe, at this point of time, it would be in the similar range for FY26 as well.
Sir, for the Europe market, FY25, was a great year. If you could sort of elaborate on the growth prospects for this region, ex NRT, as well for '26-'27 maybe?
Yes. I agree with you. Europe is a growing area for us. First of all, we are expanding to more countries. We are launching more products, primarily leveraging the pipeline for the United States. We are going to launch biosimilars in Europe, both rituximab, bevacizumab, and after that denosumab and abatacept. And we are planning obviously to grow the NRT business. So indeed, Europe is going to be an important growth area for us.
Sir, as far as semaglutide is concerned, because it can be manufactured using biological route as well as synthetic route. Any colour, if you could share in terms of at least the initial countries like India, Canada, would they be okay to approve the synthetic route? And the competitive dynamics would be different, if that happens or do you think the competitive dynamics would be similar, even if it is approved, either through a synthetic route or a biological route? So, likewise, the price erosion basis competition would be higher for synthetic route?
Yes. So, we believe that the synthetic route can be approved for the injectable, for the pens. And the semi-synthetic route is going to be used for the oral product. And that's what we are planning to do, synthetic for the injectables and semi-synthetic for the oral. It, of course, depends on how many people will launch the product in each one of the markets. So, it's not so much because of the synthetic versus non-synthetic, it depends who has access to capacity, at least at the beginning, and who is going to obtain approval. So, in terms of competition, I believe that in some of the markets, they may have some advantage, where it will be, at least, for a short period of time or a longer period of time, depends on the scenario, less competitive, maybe less players that will be in the market. And thereafter, it will be very competitive, because many companies are having this product and they will compete for market share. At the same time, the product will grow. So, we are preparing ourselves for the scenario in which we believe that we have a chance for relatively limited competition, but as well as prepare ourselves for the scenario of high volume, low price, very competitive landscape. We are gearing for both.
Sir, my first question is on your India business, where you talked about 6% growth, excluding the vaccine business. So, how should we see this portfolio ramp-up happening next year? Any areas where you think the growth was a little lower this year? And then next year, how should we model this business for?
So, you are going to see similar growth overall for India also next year. This year, we grew 16%. That kind of range of growth you are going to see also in FY 26. Indeed, I want to emphasize that, although we highlighted the inorganic versus organic, but I want to highlight that most of our growth in India will be inorganic. We are licensing products, we are acquiring products. We are introducing innovation through that. So, it will not be by growing necessarily, only the big brands, and I will refer to it in a second, but primarily, by introducing products that have better standard of care. Having said that, most of our big brands from the past grew actually double digits. There are two areas in which we did not do as well. This is in cardiovascular as well as in Gastro Intestinal (GI). And, we also have mitigation plans for those, primarily, by adding more marketing resources, addressing the relevant products and introduction of life cycle management. So overall, between new products, innovation, dealing with those big brands that do not do well, we believe, that we will have a high double-digit growth in India next year.
My next question is with regards to the recent updates coming from the US in terms of a certain concession on the regulatory front being offered by the US agencies, as well as they talking about increasing the intensity of surprise inspections for plants based out of India and China. So sir, would love to hear your take on these developments coming from the US market?
Yes. So it's not new. Just this year, the inspection that we had in CTO-3 and CTO-6 were unannounced inspections. Our facilities are ready for it. This was always the guidelines in the United States for years that it's unannounced. So all of our facilities are ready for that. That actually is the guidelines for a while. And it will require people, that are not ready for that, maybe to upgrade their systems, but we are ready for it.
Just wanted to check with respect to gRevlimid, given the import alert that has been issued to the Viatris facility. So, could you see any meaningful benefit, particularly in the first half this year? Or is that largely a non-event, given that there are volume restrictions in place?
I don't think there will be any impacts on us.
In the Canadian semaglutide market, there are 4 players who have filed. If you can talk about our approval time lines? And do you think that all the 4 players would be there in the Canadian market when the opportunity opens up? And the approval time line for us?
I, obviously, don't know who would come or who would not, but we are planning to be there at the date that the market will be open. Approval time lines will likely be a little bit before the date. So, somewhere in the end of this calendar.
On the GLP last launch, which happened in the US after Teva, 2-3 players have come in. Do you think the scenario could be the same when it happens for semaglutide when it launches in the US? I think, Biocon just got an approval or they have launched. So, is it possible that the market there are a lot of filers, but could be like 2, 3 players like gVictoza or it will be large number of players out there? How do you think the landscape will be on the competition part?
We believe that the landscape of semaglutide will be very competitive. It could be a situation at the time of launch or around the time of launch, there will be people that may get the approval later or have access to the supply chain later. And, so, it will evolve. And those players that may come before and be there on Day 1 may gain first launch advantage. But overall, it's going to be, we believe, a very competitive market, and we are preparing ourselves in terms of cost, supply to high-volume, low-cost type of a product over time.