Biocon says confident of maintaining margins in Q4

“The low R&D spend is largely attributable to the clinical trial environment in India,” she said, referring to a Supreme Court decision that had revoked the health ministry’s right to clear trials. “We have had to either put on hold or defer a large number of India-based clinical trials, some of which we have actually taken offshore. But it is temporary.”

Biocon would like to maintain R&D spend at its usual levels of 6-8 percent of biopharma sales, the CMD said, adding that an expected rise in R&D spend would be offset by changing the product mix and focusing on high-margin products such as insulin.

“The focus is currently on maintaining margins more than expanding the topline,” she said. “The huge growth drivers will only come in once our Malaysia facility is full operational and when our abbreviated new drug application (ANDA) vertical is fully operational. We do intend to file our first ANDA later this year.”

Below is the interview of Kiran Mazumdar Shaw, CMD, Biocon with Reema Tendulkar on CNBC-TV18.

Reema: First focusing a bit your margins. It looked quite positive at 23.8 percent, but that is on account of the R&D spend being low and you in your press conference indicated that the spend on R&D will go up. So what according to you will be the sustainable margin range that we could assume going forward at least for the next few quarters?

A: I think in terms of margin rates being sustainable we are endeavouring to keep this margin rate at these levels. in terms of R&D spends where you have seen a reduced R&D spend in this quarter it is largely attributable to the clinical trial environment in India where we have had to basically either put on hold or differ a large number of India based clinical trials, some of which we have actually taken offshore.

So I think this is just a temporary reduction in R&D spends which are likely to increase over the coming quarters.

Having said that I would also like to say that the last quarter you did see a spike in revenues which were attributable to winning certain global tenders which were not obviously repeated this quarter. The order book for Q4 is strong and we are very confident that we will end the year on a strong note.

Reema: You said that you are looking to maintain margins at current levels. If your R&D spend goes up what will be the operating leverage which will keep in which will help you maintain margins at current levels and secondly, could you tell us what would be the percentage of R&D as a percentage of your sales that you are looking to target or we can expect in the coming two quarters?

A: Generally speaking our R&D spends are between 6 to 8 percent of our bio pharma sales and you can see that being reflected in the 9 months numbers thus far. I think that is the kind of level at which we normally try to sustain R&D spends.

Having said that, in terms of how do we intend to keep the margins at this level, I think we are looking and changing our product mix in our base bio pharma business which is largely the APIs business and of course insulin is a big, high-margin growth driver for us. We are challenged with capacity constraints on insulin, but have put into place some measures for incrementally expanding our capacity which should kick in from Q4 onwards.

So we are looking at getting a better product mix, better margin realisation, less reliance on our low margin statins business. So I think this is a work in progress, but it is beginning to deliver for us which has already indicated this quarter, but going forward I think we should be able to sustain these margins.

So we are really focusing on margins more than top-line, so I think that is the story that we are trying to develop. The huge growth drivers will only come in once our Malaysia facility is full operational and when our abbreviated new drug application (ANDA) vertical is fully operational. We do intend to file our first ANDA later this year.