Biotechnology major Biocon which today posted a strong first quarter earnings raised concerns about confusion in India's drug pricing policy, which has impacted the growth of pharma-biotech sector.
“We are still seeing very challenging environmental condition in India especially around regulatory aspects of the pharma-biotech sector. We hope that the government will really address this with the sense of urgency,” Kiran Mazumdar Shaw, CMD, Biocon said in a earnings press conference.
She alleged that due to confusion in pricing policies stockists have been reluctant to take stock on hand until the pricing issues are resolved. She added that although clinical trials are resuming now, India needed a regulatory robustness. “We don’t want more layers being put in to approvals but have expertise and the knowledge with which to approve clinical trials expeditiously,” she stressed.
The company reported 18.65 percent rise in consolidated net profit at Rs 93.50 for the first quarter on account of strong performance in the biopharma segment. Consolidated revenue rose to Rs 723 crore from Rs 594 crore in a year ago quarter.
Mazumdar said that Q1 result reflect the company’s inherent strength in product portfolio. She expects insulin to be the strong growth driver in current fiscal. The company will launch its second novel biologic drug Alzumab used in psoriasis treatment in August. “We are now of course looking at taking this molecule global and we are in discussion with several companies that are very keen to partner this program in our global development plan,” she said.
Below is the verbatim transcript of the interview:
Q: I heard you mention at your press conference that you are seeing some challenges in the India business because of the pricing pressure etc, what kind of a pressure are you expecting to see going ahead and what could the growth slip to?
A: I do not think I am referring to pricing pressures. I am talking about pricing policy issues because basically the industry itself has had a steady decline in terms of growth. Quarter-on-quarter (Q-o-Q) for the last five quarters largely because there has been uncertainty and lack of clarity around the drug pricing policy. So now that has been sort of fairly addressed hopefully now all the questions are answered and the sector will start correcting because I think as far as Biocon is concerned, we haven’t had a major hit out of all these price control issues. So we have had a very nominal kind of impact on all our products.
This has created a lot of market uncertainty in terms of pharmacists and stockists of product and about labeling of pricing on products and whether we need to sort of wait till we get the prices ascertained and things like that. So those kind of issues, an unnecessary issues including things like the knee-jerk reaction to the Pioglitazone issue where the government suddenly banned it and now they are planning to revoke the ban.
This does not augur well for the sector. So these are the kind of issues, which are more external in nature. It is not about competitive pricing pressure. There we are very clear that Biocon has done extremely well because we have such a differentiated portfolio and we have done extremely well and that is where we have seen improved margins as reflected in this quarter’s earnings.
Q: Very good set of numbers this time around and I heard you mention about the performance that you have seen in Syngene and Clinigene with 26 percent year-on-year (Y-o-Y) growth, do you think this is sustainable the kind of 20-25 percent growth that you are seeing in research services?
A: We are very confident because we are the leading research services company in India and certainly one of the leading companies in Asia. We are getting a lot of good traction in this particular business because we have very differentiated offering, very high value-added offerings as well. We are seeing a lot of business come our way because of these very specialized skills that we have developed in our research services business.
We are very confident that we will continue with this kind of pace of growth for the remaining part of the year. So research services is doing extremely well and we are just hoping that the government continues to support and makes the right kind of decisions on supporting this sector.
This is a sector which is extremely important because it has a huge benefits from a weak rupee because most of the revenues are registered in terms of dollars, most of these spends are largely rupee denominated. This is a very attractive sector, which will benefit from a weak rupee. But we need a regulatory environment that doesn’t mute this particular opportunity because we need to see much better resolution of current kind of regulatory issues around drug development, clinical trials, approval delays can cause a lot of other issues. Fortunately at this stage, Syngene’s reliance of many approvals is limited but as we move ahead, we need timely approvals.
Q: You were talking about the benefits from a favourable exchange rate. We have seen that in your numbers this time around along with an improved product mix. With respect to margins particularly do you think this 21-22 percent margin level is sustainable through the course of FY14 and what could the trajectory look like going ahead?
A: What we are doing is we are looking at product mix. Our new organizational structure is giving us a lot of focus making sure that the profit and loss (P&L) responsibility that we have given to each strategic business unit (SBU) is focused on maintaining this kind of margins.
At a group level, the overall benefit from forex has been about Rs 8 crore. So it is not huge but this is largely because we have had some hedging losses in Syngene –- thanks to an old contract – but the second half of this fiscal will then have an upside for Syngene once it concludes that particular hedging loss, which will continue in Q2. But moving ahead, the rest of the year looks very robust for Syngiene and for the group as a whole. So I think these levels are something that we will focus on to make them sustainable.
Q: You have made very good progress in the phase III clinical trials of the human insulin business, when do you commence the clinical trials of Glargine and Herceptin, any kind of timeline that you can give us?
A: The Herceptin global trials are already underway and the Indian Herceptin trials we should be able to get the final study report over the next few months and then file for Indian registration shortly after that.
In terms of the Glargine global development that is also on the cards in the very near future. So everything is on track is what I can say.