Biocon plans to expand margins to 25%, led by new products and markets: Group CEO Peter Bains

Peter Bains, Group CEO, Biocon

Despite facing pricing pressures that squeezed Biocon's operating margins in the first quarter of 2024-25, Group CEO Peter Bains remains confident about the company's growth prospects. In an interview with Moneycontrol, Bains highlighted the robust launch pipeline that he believes will be key to driving Biocon's future success. Building on these expectations, Bains also set a target of 25 percent operating margins for Biocon in the medium to long term.

Bains is particularly optimistic of upcoming launches aiding the health of its generics business, especially in the second half of the fiscal year. Also giving an update on the regulatory actions at Biocon's Bengaluru and Malaysia units, Bains revealed that the company was on track to rectify issues raised by the US Food and Drug Administration.

In the interview, Bains also discussed a range of other critical factors that will shape Biocon's future growth. Here are the edited excerpts:

The biosimilar business was at the forefront of Biocon's growth in Q1. Can you share the factors that led to this double-digit growth within the segment?

The strong 11 percent underlying growth in our biosimilars business was driven by market share gains in the US and emerging markets. This is a strong indicator of the successful consolidation phase post-acquisition and sets a foundation for mid- and long-term growth.

(In November 2022, Biocon Biologics completed a $3 billion acquisition of Viatris' international biosimilars business.) 

In the US, we've seen significant product and brand performance in our major franchises, oncology and insulins, with market shares of 20 percent and 19 percent, respectively.

In Europe, although the transition has been more complex due to market fragmentation, we've managed to maintain stable market shares. Overall, the biosimilars segment is performing as expected, and we’re positioned well for continued traction through this year and beyond.

Despite the growth, margins have been under pressure this quarter. Do you expect a bounce-back in the next quarter, and what are your margin targets for FY25?

Pricing pressure is a fundamental characteristic of the generic drugs market, triggering margin compression for everyone. However, we do have some protection, particularly in the oncology sector, where prices are generally more stable.

Our EBITDA (earnings before interest, taxes, depreciation and amortisation) margin in the biosimilars business is at around 23 percent, which is healthy. Our mid-to-long-term guidance aims to raise that towards 25 percent, driven by new products and markets. So, while current margins are in line with expectations, we’re looking to expand them as we build our business and introduce new products.

In the earnings call, it was mentioned that Biocon expects a better second half for the generics business. Is this expectation based on an easing of pricing pressures, or are there other factors at play?

The expectation of a better second half of FY25 is banked on other factors, and not on easing pricing pressures as it remains a constant aspect of our base business. We’re addressing this through cost reduction in manufacturing and by unlocking new growth opportunities in newer markets. However, the mid-to-long-term future of the generics business will largely depend on our ability to introduce new products.

We have three streams here: generic formulations, APIs (active pharmaceutical ingredients), and leading it is the launch of liraglutide, our GLP (glucagon-like peptide) for diabetes and obesity. We already have a UK marketing approval for liraglutide, and we expect to launch in other markets as well. The UK launch of the drug is our key priority for this fiscal, and it’s expected to drive performance in the second half, continuing well into FY26 as we expand into more territories.

Can we expect material contributions from liraglutide in FY25, or will it be a bigger opportunity in the next fiscal?

Liraglutide will start contributing in Q4 of this fiscal, but the major impact will be in FY26. While there will be associated costs with the launch, it’s crucial to establish our position as a first mover in the UK and expand globally. So the significant growth will play out beyond Q4 and into fiscal 2026.

Can you provide updates on the USFDA inspection status, particularly for the Bengaluru and Malaysia sites?

We’ve just completed a comprehensive USFDA inspection of the Bangalore site, covering multiple manufacturing facilities, quality control labs, bioanalytical labs and warehouses. We received 10 observations in the Form 483, but importantly, there were no repeat, data integrity, or quality oversight observations.

The observations were procedural, and our quality team is preparing a comprehensive response, which will be submitted to the FDA soon. Once reviewed by the agency, we will inform the market of the outcome.

Regarding Malaysia, we expect the agency to advise us of an inspection there in due course, and we will follow the same procedure and keep the market informed accordingly.

Any update on the status of diabetes drug aspart's launch in the US market?

Aspart for the US is subject to USFDA inspection. While many other agencies globally have approved it, the US approval will depend on a satisfactory USFDA inspection.

The USFDA has been taking a lot of regulatory actions against Indian pharma companies recently. What has changed in its approach, making it difficult for domestic companies to meet their standards?

The USFDA plays a vital role in ensuring quality for patients, and inspections are necessary to validate regulatory standards for facilities and products. India is a significant producer of pharmaceuticals, so it’s expected that there would be a lot of regulatory traffic here. This is a good biomarker of the vibrancy of the Indian market. While we've had observations in our recent inspection, they are procedural, and we are confident in addressing them to meet the required standards.

Aside from liraglutide, are there any other key launches in your pipeline that you see as incremental opportunities over the next two years?

Yes, definitely. In addition to liraglutide, we have several generic formulations and APIs in the pipeline. In the biosimilars business, we expect to launch up to five new products in the US and three in Europe over the next 24 months.

FY25 will be a year of consolidation for biosimilars, but as we strengthen and expand our vertically integrated model into new geographies, the portfolio expansion will accelerate, offering exciting growth prospects.