Optimistic about entry into generics market; hoping for better returns in H2: Biocon

Below is the verbatim transcript of the interview.

Nigel: You admitted that it was rather a muted quarter that we have seen various challenges in the past quarter but how is the second half of the year looking? do you expect a bit of an uptick coming in there, some of these regulatory issues can they be sorted out for and also update us what is happening on the biosimilars business, what is the outlook going ahead?

A: We have two challenges that we have to basically overcome. One is with respect to our small molecules business, our API business and there as I mentioned to you that there are pricing pressures being felt by all the Indian generic companies. That has had a cascading effect on our own business and that is basically something that we hope will correct because we hope it has bottomed out and we hope that the next half we will see better returns for us in many of these segments.

Having said that, we are also very optimistic about our own entry into the generics market with our Rosuvastatin and we hope that it will also pick up in terms of sales.

Coming to biosimilars, which is our main strategic business, there we have had a huge impact this quarter because we have had to take certain plant shutdowns, plant disruptions because of certain modifications that we have had to undertake in order to comply with certain regulatory requirements but that is now getting complete by the end of this quarter. I think that going ahead we should see some basic return to that business.

Having said that, I think we just have little more than a quarter to show some positive growth trajectory. So the real uptick will start next fiscal.

Having said that, I believe that we are also looking at certain tenders in emerging markets, certain delayed regulatory approvals in certain markets, which we hope will then come into play for the rest of this year.

Ekta: Expand a little bit on the small molecules business. You did mention pricing pressure, are you referring to the US markets when you are talking about pricing pressure?

A: Largely US market because we are the key suppliers of statins and immuno-suppressants to the US market but of course there are other markets, the Latin America markets continue to deliver robustly for us. But the main impact has been in the US market.

We believe that going forward, because of pricing pressure the consumption of many of these APIs have come down from some of our key customers who have decided not to play in those markets and that is why I said it has sort of had a cascading effect on our business.

Going forward, the companies have decided to re-enter at certain price levels and we expect that the uptake will improve.

Ekta: We have woken up to the news that CVS might be considering a merger with one of the largest health insurers in the US that is combat Amazon entering into the market as well. So what is your sense when it comes to pricing pressure in the US, what are you anticipating because you have mentioned that you expected to have bottomed out, has it or do you expect incremental pricing pressure because of the developments that we are seeing with Amazon etc entering and hence the impact on the small molecules business as well as your generics entry in the US?

A: If you look at it in one way, I think the Indian generic players are the lowest cost providers of generics and therefore whether it is a CVS or whether it is an Amazon, I think the Indian manufacturers of generics are going to be extremely competitive. So from that point of view, India has a huge opportunity to make a bigger play in the generics business.

So whether it is CVS, whether it is Amazon, you are going to see Indian companies benefiting out of these kind of big developments.

Obviously, we will have to wait and watch and see what happens but that is the way I look at this business opportunity.

Mangalam: The US FDA recently had issued a complete response letter (CRL) as far as pegfilgrastim is concerned. Have you responded to them? What is the status update on that? And as far as trastuzumab is concerned, December 3 is the target action date. Is there a risk for further delays because it was delayed by three months earlier?

A: Let me explain and answer these questions in two parts. As far as the complete response letter of the pegfilgrastim dossier was concerned, we have already shared with you that the key concerns were real about updating our biologics licence application (BLA) based on certain plant modifications that we have done in response to their own observations and this pertains to plant requalification which was not ready at that time when they were reviewing our dossier. Therefore, they have flagged this as an important part of that CRL.

We are in a position to basically update the dossier, obviously we have to resubmit the dossier with this additional information of requalified plant data. But I think we are in a position to do that fairly soon after which of course, they will review the dossier and hopefully, we will get approval not too late after that. But it does not impact our commercialisation plans for pegfilgrastim and that is what is a relief for us.

Now when you look at the trastuzumab target action date of December 3, we hope we are on track to receive approval on that date. I think we have basically responded to most of their queries and what gives us the confidence is the fact that the Oncologic Drugs Advisory Committee (ODAC) approval basically has no concerns on any of the scientific aspects or the clinical data or any other aspects, which normally are a big concern when it comes to taking a decision to approve or not.

Ekta: But talking about the Bengaluru facility where exactly do things stand when it comes to remediation, one, with the US FDA as well as secondly, with the European regulators?

A: We have basically carried out all the kappas that have been expected both from European Medicines Agency (EMA) and FDA. They are largely complete. We are in a position to seek re-inspection from EMA fairly soon and we are in a position to basically provide all the kappa updates to US FDA in terms of all our submitted dossiers. So I think we are fairly confident and we are working very closely with both regulatory agencies to make sure that there is nothing outstanding.

Ekta: What was a disappointment this quarter was the operational margins this time for Biocon. What can we expect in terms of guidance in probably the second half of the fiscal?

A: I did explain to you what the reasons for those lower margins were. Obviously, if you have lower sales and if you have much higher impact of Malaysia carrying costs and an impact on your biologic sales and revenues, I think it is obviously a no-brainer that it is going to impact margins. Hopefully, with some recovery going forward, the margins can only improve.

Nigel: I remember you had divested some stake in Syngene earlier. Any possibility of you looking to bring that stake down? Could we expect some further divestment or that is not on the cards?

A: Right now, I do not think there is a need to look at those kind of divestments, but depending on how our business needs are, we will keep revisiting these opportunities.