Looking at insulin biz to drive growth ahead: Biocon

Leading biotech firm, Biocon declared a better than expected second quarter result with 4.7 percent rise in net profit.

Kiran Mazumdar Shaw, CMD of Biocon said their branded formulation business has grown 45 percent and excluding it, the bio pharma business has seen 20 percent growth year-on-year. She also feels the business is gaining traction in emerging markets and the US.

Biocon has struck a deal with GE Capital whereby an investment of Rs 125 crore would be made in Biocon's research subsidiary and Shaw believes such investments would lead to exponential growth ahead. The company's research and development investments have increased 57 percent YoY and Shaw considers it to be an integral part of their business. Going forward, the Biocon is looking at the insulin business to drive growth.

Shaw further added that Biocon is trying to find partners post the Pfizer deal. The company is also in talks to license an oral insulin, IN 105.

Here is the edited transcript of the interview on CNBC-TV18.

Q: To start with the segmental revenues this time around, it has been an across the board growth. Can you give us some sense in terms of FY13 guidance, what would the segments like biopharma, branded formulations as well as the CRAMS business look like?

A: Basically, the biopharma business is gaining traction in emerging markets and in the US. In the emerging markets we are seeing our APIs and insulins gaining a lot of traction.

In the US, both Tacrolimus and Fidaxomicin have had good growth and this is driving growth. Our biopharma business excluding the branded formulation has grown 20 percent year-on-year (YoY).

Branded formulations have grown 45 percent and this is something which we are very focused on. We are very keen on making sure that this segment delivers good growth for Biocon given that it has grown from a low base and we want this to be a Rs 500 crore vertical by the next fiscal.

I think this is something that we are very focused on and very confident that we can build very strong brand value and a strong and large growth segment.

Q: You have increased your R&D expenditure considerably. What are you expecting to churn out of this and how soon?

A: I would like to call it research investment and not research expenditure. It is something which is very inherent and integral to our business. This is an investment that needs to be made in order to deliver exponential growth in the future. As we get into the clinic this spends are going to increase. What you are seeing is a 57 percent increase in R&D investment and this is driving our various programmes such as insulin and the novel programmes.

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Q: I take your point that it is an integral part of the company's growth, I am not contesting that you are spending more money on it, what I am asking you is you can give us some timetable of what you see as potentially lucrative candidates and by what time will the company be able to harvest the money that is being invested?

A: First and foremost, we have announced this quarter that we have seen some good data coming out of our recombinant human insulin programme in Europe. This basically allows us to seek marketing authorization in 2015. This is something that will basically start realizing returns for us in developed markets from then on.

Glargine is also progressing well, it involves greater R&D investment. We have the money in place considering the fact that we have the Pfizer money to advance all these programmes. Biosimilars is something that we partnered with Mylan. In the interim, you are going to see a very large growth opportunity for Biocon in the insulin segment in the emerging markets.

We are already gaining a lot of traction in many emerging markets like Latin America, Mexico, Middle East, North Africa, South-East Asia and this is something that is going to drive growth for Biocon in the coming years.

If you look at our novel programmes, IN-105 is something that has incurred R&D investments and going forward it will incur more investments. Having said that, we are in very advanced stages of finalizing our development partnership with a large pharmaceutical.

We are looking at licensing and partnering our Itolizumab or a CD6 programme which should happen in the next 12 months. We are also looking at partnering our Anti-CD20 programme, the BVX-20 programme where we are just about to enter the clinic. That also will probably get partnered over the next one-two years.

I think the timeline for novel molecules and for biosimilars unfortunately is much longer than generic programme. Therefore, you are looking at a timeline of anywhere between one and three years before you see any returns on these kind of investments. But, we are very confident that the returns are going to be of a very large magnitude.

Q: IN-105 which is oral insulin, you did mention that there is a possible licensing deal which is on the cards at this point in time. Can you throw some more light with regards to the contours of it and which markets would possibly be focused on and by when could it culminate? Would you be looking to possibly find a different partner besides Pfizer for the deal that you earlier had in place with them?

A: As far as IN-105 is concerned, there is a lot of clinical development required ahead of a well designed phase three clinical trial. I think there is some time to go before you can see this molecule in the market. I do want to be cautious about managing expectations because I think this is a very exciting programme. But, it is going to take quite a few years before you see this product commercialize.

We are in advance stages of finalizing a development license with a large pharmaceutical. Initially, it is going to be a back ended deal. That’s not something that is going to generate a huge amount of licensing income for us in the short-term but it does have the profile of generating pretty large licensing income for us over time. It is going to be a back ended deal.

When it comes to finding a partner in place of Pfizer for the developed market, we are in the process of engaging with several companies who can fill that space.

Q: You have an interesting deal with GE Capital picking up stake in Syngene, how close are we to an IPO?

A: When we looked at taking Syngene to the market, we realized that the valuation in the market was according to Biocon and we felt it was not optimal. We believe that unless we create a benchmark valuation for Syngene we would be undervaluing Syngene when we took it to the market.

We have never wanted to take Syngene to the market just to raise capital. It was more to unlock value for Syngene. We believed that at a time when the markets are not valuing companies as optimally as we want them to, the PE route of getting GE Capital which is a high quality investor to take a stake in Syngene would really start unlocking the right valuation for Syngene before we took it to the market.

Now, why GE? There were many suitors who wanted to have a stake in Syngene but we believed that GE was the best investor for Syngene because GE itself in its organization has some leading edge expertise in life science based technologies, especially in biologics. We felt that this would actually allow Syngene to further differentiate itself and be in a position to offer enhanced research services to its global customers. This has to be taken as an investment that goes beyond just financial investment.

Q: A word on R&D expenditure because that is on an upswing, any pressure that you would possibly factor in, in terms of margins going forward for Biocon because analysts are concerned that your R&D expenditure would scale up quite significantly and would therefore, pressure margins going forward?

A: Despite R&D investments increasing 57 percent year on year, we have had to contend with rising fuel costs and therefore, increase in power costs. We have had to contend with increased personal costs and higher import cost because of appreciating rupee and we have still delivered 8 percent increase both at the PAT and EBITDA level. I might also add that we have seen many of our export oriented units (EOUs) lose tax benefits and therefore, we also had to take a much bigger tax hit this half.

Given all that we have done extremely well and I would also like to once again emphasize that R&D is an integral part of Biocon’s business. We are going to see increased R&D spends and this is to be taken as an R&D investment because we are investing in growth. We would like analysts and investors to understand that unless we invest in R&D, these spends are only going to increase because as molecules go into the clinic the spends are going to increase.

But going into the clinic is also a reflection of advancing these programmes. It has to be looked at in the right context. R&D spends are going to increase and so is our business going to increase. We will have to build models where we can sustain such R&D investments.