Rationalising products to become specialised player: Biocon

The company has increased its research and development (R&D) spends, which according to Shaw, is a positive signal for its growth. The R&D spend of the company is around 8-9 percent of its biopharma revenue and is sustainable. 

Below is verbatim transcript of the interview:

Q: Walk us through your outlook on revenues. This quarter at 15 percent growth has come in as a pleasant surprise, your CRAMS have gone up by 27 percent, is 15 percent revenue growth sustainable in FY16?

A: We certainly believe so. We have delivered a good set of numbers this quarter and have ended the annualised fiscal on a strong note.

The 78 percent jump in profit is certainly contributed by an exceptional income, which has also contributed to 20 percent jump in profit after tax (PAT) at the annualised level of Rs 497 crore. However, even if we have to set aside the exceptional income, we have done very well.  

We have seen a huge jump in our research services business this quarter, 27 percent jump in terms of revenues and in terms of this business as it prepares itself for an initial public offering (IPO), these numbers and growth numbers are indicative of the robustness of this business.

Our research services business, which is Syngene and its merged entity Clinigene is in good shape to sustain good level of growth. Biocon’s biopharma business is also now in a better shape to deliver higher growth this fiscal.

Last fiscal we had certain capacity constraints, which we have addressed to contract manufacturing arrangements and we were also anticipating various regulatory approvals in emerging markets and a very important announcement that we made earlier was the regulatory approval by the Mexican authorities for our insulin Glargine, which now enables us to participate in large Mexican tenders for insulin and insulin analogues, which is Glargine. So I think overall we are very confident.

The growth and the better improved profitability that we have seen this quarter is reflective of our focus on a better product mix, better price realisation and we continue to focus on that. Even branded formulations although it has had very muted growth, we have to look at it in context of the way it has contributed better profitability to the group.

We have deliberately taken a hit on topline as we rationalised our products and offerings because we want to position and shape this segment as a niche and specialty segment because Biocon does see it as a specialty player in branded formulations.

Q: Just to reiterate that first question with regards to the revenue growth going ahead, are we likely to see that 10-15 percent going ahead because otherwise revenue growth hasn’t been that great but this time around it is looking very good. So for the quarters going ahead, can we look at this run rate of around 10-15 percent. Also, do we see more focus being shifted to the CRAMS business rather than the biopharma business given that it has been such a big driver at least in the last quarter?

A: We will be separating Syngene as a listed entity in the not too distant future. We expect to list Syngene by July but Biocon continues to have a strong shareholding of Syngene but we are focused on all these businesses.

We have always projected research services as a strong growth driver but we have also projected our biopharma business and our branded formulations business as a very strong growth driver for us. We have projected a billion dollar target by FY18-FY19 and remain committed to that number.

We see a lot of visibility in terms of being able to achieve these numbers as we advance our biosimilars pipeline. You have seen a huge jump in R&D expense this quarter and this fiscal, which indicates the kind of spends we are incurring in advancing these very important biosimilar programmes in the clinic.

Two of which are already in a very advanced stage of clinical development and few others are about to enter phase III clinical development.

We are in very good shape, we have the largest portfolio of biosimilars globally, which also makes us a frontrunner in biosimilars and as the guidance gets clearer, USFDA put across another set of biosimilar guidelines only yesterday, which augurs well for us.

I think overall we are well positioned to lead the pack.

Q: What about R&D? Your R&D expenses, as you pointed out, have gone up a fair bit on year-on-year (Y-o-Y) basis and that has also compressed the margins. Have you laid out what will be the total R&D spend by Biocon in FY16 and what will be a sustainable margin range?

A: We have always shared with you that our R&D as a percentage of our biopharma revenues will continue to be in 8-10 percent range and that is highly sustainable. It is also extremely important because if you don’t see an increased R&D spend, it is almost sort of indicative that we are not advancing as we should in the clinic.

An increased R&D spend to me is a very positive signal, which investors in this country and analysts should try and recognize and understand that this is what the future of our business is all about.

Q: Give us an update with regards to what is going on in the Middle East. Also, give us an update with regards to your Malaysian facility as well, what is the status in terms of the approvals?

A: In Malaysia the operations have commenced. We are now in the qualifying phase so we hope to get inspections by regulators first from the emerging market regulators and hopefully, not too much later by the developed market regulators that is USFDA and European Medicines Agency (EMA) so we are now preparing ourselves to leverage the Malaysia capacity first in emerging markets and soon after into developed markets.

So I am pleased that the Malaysia project was completed in time, on budget and is also on track to complete those qualifications and inspections also in the timeframe that we had envisaged.

In terms of Middle East, it continues to be a worry. It continues to pose credit risk. We have a plan in place to have less dependence on Middle East and we have started to look at other emerging markets aggressively where the risk and uncertainty of those markets is not quite as severe as it is in the Middle East.

Certainly, Middle East continues to be an important market but we will pick and choose which markets we want to be in in the Middle East from a risk point of view.