Biocon aims to maintain 35-40% growth in branded healthcare

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Higher energy costs and wages resulted in a 4% drop in the quarterly profit reported by Biocon today. However, this was higher that the street's estimates for the India's top biotechnology company. In an exclusive interview to CNBC-TV18, chairman and managing director Kiran Mazumdar-Shaw said that they saw major growth from the research services vertical and branded formulations business.

"We expect to maintain 35-40% growth in branded healthcare," she explains. For the quarter in review, research services business grew by 20% and branded formulations by 37%.

However, licensing income disappointed slightly due to regulatory processes.

Another vertical that is performing well is the insulin business. Biocon's new product, INSUPen, is expected to be a value driver in the business. "We are also in talks with potential global partners for oral insulin," added Shaw.

Below is an edited transcript of her interview with Latha Venkatesh and Reema Tendulkar. Also watch the accompanying videos.

Q: Can you give us an idea of how you expect things to go in the second half of the year? Should we assume that you will be able to maintain this 20% revenue growth?

A: As you know, we have done extremely well this first half. Our core businesses continue to perform very well for us. We have seen very good growth in two verticals - the research services vertical which has delivered Rs 180 crore of topline and of course our branded formulations business which has grown 37%. The rest of our businesses have also done extremely well.

At a quarterly level, our topline has grown 23% and at a half year level it has grown 17%. I am very confident that the next half will be as good, if not slightly better and so we continue to remain very focused on delivering at this kind of level going forward.

We see the research services business really beginning to gain traction. We are seeing our core businesses also beginning to really focus and deliver much greater value for us because we are seeing very good steadying of prices across all our active pharma ingredients (APIs) businesses. Also, our insulin business is doing extremely well, our partner programs are on track.

I guess one of the aspects was that perhaps licensing income could have been slightly higher this quarter. Unfortunately, a lot has to do with the regulatory process so sometimes you are not able to get the timing right. But having said that, I am confident that we can start doing things in the next half.

Q: You mentioned that you have made about Rs 51 crore in licensing income, but into the bottomline you could take in only Rs 11 crore because of high developmental costs. Do things get better? Can you give us some guidance as to how licensing income and the margins will progress from here on?

A: There are two aspects to licensing. One is of course licensing income recognition. Here is where I explained that at a gross level of course our licensing income improved from Rs 44 crore to Rs 51 crore this first half as compared to last fiscal. But at a net level, because of development costs, we were only able to recognize Rs 11 crore at a PAT level where as last year we were able to recognize Rs 44 crore. That makes a big difference to margins as well.

Going forward certainly we will continue at this kind of level in terms of licensing recognition, but we also expect some other kind of licensing income to really sort of help us get a much higher net licensing income recognized going forward. So yes, you are right, you will see this improving. It's about timing. There have been regulatory delays as you know in our country, but I think most of these approvals have now come and we hope that we will be able to take some corrective action in the next half.

Q: You spoke about INSUPen. Could you tell us whether there has been any kind of contribution of that in this quarter because your branded formulations have grown by about 37% on a year on year basis? Going forward, what might be the contribution of INSUPen?

A: You are absolutely right. Actually INSUPen was just launched on the 17th of October, so it cannot obviously be captured in the first half results. But this is a long awaited device that is expected to be a big value driver for us in the insulin segment and certainly we will hope to capture quite a big upside from this launch in the next half. So yes, we remain very confident about our insulin foray in India as branded formulation. This is a very unique offering as I mentioned because we are one company that's able to offer a common device for all our insulin, which really maximizes patient convenience.

So I think it is going to make a big difference, it's a very good pen. In fact the doctors have actually welcomed the pen design. They have actually talked about the fact that it is a very good quality and up to their expectations. So I think we will do extremely well with this pen.

Q: So can you give us some more tangible idea as to what therefore can be the branded formulations as well as the product business revenue increases? Also some time line on the oral insulin? I would assume that's much awaited.

A: To answer your first question, this branded formulation healthcare business is something that we have focused on and we expect to maintain this kind 35-40% level of growth. We want to make this into Rs 500 crore business within the next two fiscals. So it's quite an aggressive strategy, but I know we can get there on target.

In terms of our oral insulin program, we continue to be in discussion with potential global partners. So at this point in time there is not much I can share with you in terms of finalizing anything.

Q: What has been the contribution of Fidaxomicin because last quarter you spoke about ramping that up?

A: We have had some of that business recognized last quarter and I think going forward as I mentioned I think it's good news that they have actually revived their forecast upwards. There is quite an increasing demand and we are trying to ready ourselves to actually cater and meet those demands. They are very optimistic and I think they have already seen some very good off take of their product in the market, so they have actually alerted us that we might have to ramp up our production immediately and not wait for a year to do that because in this year the initial forecast was quite conservative. So I think we are readying ourselves for that.

Q: Syngene grew at 21% YoY with a profit of Rs 10 crore. Do you see it growing even faster in the second half because I think they were in the past able to perform even better? What about the listing, what are the plans?

A: I just want to correct you. The research services business grew 20% and they actually delivered a PAT of Rs 24 crore. So that was a pretty big contribution. If you remember, last year this time we had a flat breakeven position, so this has been a huge upswing for the research services business. I think you will see some equally good numbers in the second half.

As a results of this trend, we remain very committed to our listing and I think we expect this business to really be a very strong growth driver of the group.