Biocon Ltd. ADR (BCNQY) CEO Arun Chandavarkar on Q3 2019 Results - Earnings Call Transcript

Jan. 25, 2019 4:24 PM ETBiocon Ltd. ADR (BCNQY)
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Biocon Ltd. ADR (OTC:BCNQY) Q3 2019 Results Earnings Conference Call January 25, 2019 10:30 AM ET

Company Participants

Saurabh Paliwal - IR

Kiran Mazumdar-Shaw - Chairperson and Managing Director, Founder

Arun Chandavarkar - CEO and Joint Managing Director

Siddharth Mittal - President Finance and CFO

Paul Thomas - Chief Commercial Officer

Nehal Vora - Commercial Head, Global API

Conference Call Participants

Ronny Gal - Bernstein

Prakash Agarwal - Axis Capital

Damayanti Kerai - HSBC

Harith Ahamed - Spark Capital

Shyam Srinivasan - Goldman Sachs

Surya Patra - PhillipCapital

Nitin Agarwal - IDFC Securities

Dheeresh Pathak - Goldman Sachs

Charulata Gaidhani - Dalal and Broacha

Ranjit Kapadia - Centrum Broking

Sameer Baisiwala - Morgan Stanley

Operator

Ladies and gentlemen, good day, and welcome to Biocon Limited Q3 FY '19 Earning Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I would now like to hand the conference over to Mr. Saurabh Paliwal from Biocon Investor Relations. Thank you, and over to you, Mr. Paliwal.

Saurabh Paliwal

Thank you, Janice, and good morning, ladies and gentlemen. I welcome you to Biocon's earnings call for the third quarter of fiscal '19. Before we proceed with this call, I would like remind everyone that a replay of today's discussion will be available for the next few days about an hour following the conclusion of this call. The call transcript shall be made available on our website in the coming days.

To discuss the company's business performance and outlook for this quarter, we have today with us the leadership team at Biocon comprising, Ms. Kiran Mazumdar-Shaw, our Chairperson and Managing Director, and other colleagues from the senior management team.

I would like to take this opportunity to remind everyone about the Safe Harbor related to this call. Today's discussion may be forward-looking in nature based on management's current beliefs and expectations. It must be viewed in conjunction with the risks that our business faces that could cause our future results, performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements.

After the end of this call, if you need any further information or need any clarifications, please do get in touch with me.

With this, I would like to turn the call over to Kiran Mazumdar. Over to you, ma'am.

Kiran Mazumdar-Shaw

Thanks Saurabh and good morning everyone. I'm considering that we are still January. I’d like to start by wishing everyone a very, very happy and prosperous 2019.

I would like to start with key highlights for the quarter. European Commission accorded approval to our biosimilar Pegfilgrastim Fulphila and to our biosimilar Trastuzumab Ogivri which is being jointly developed by Biocon and Mylan.

Semglee our biosimilar insulin Glargine also co-developed with Mylan was launched in the EU during the quarter. Mylan also commercialized biosimilar Adalimumab in-license Fujifilm Kyowa Kirin Biologics in the EU in which Biocon received economic benefit. With this we now have received three biosimilar approvals in the EU and have an indirect economic interest on our fourth molecule. Our biosimilar insulin Glargine was also launched in South Korea through a local partner as Glarzia. As part of our generic formulations foray into the United States, Biocon launched Atorvastatin Calcium tablets in the U.S. market this quarter.

I will now present key financial highlights for Q3 FY '19. Total consolidated revenue for the quarter was 1566 crores up 43% as compared to last year. Revenue from operations were 1541 crores which grew 46% as compared to last year. This includes licensing income of INR 7 crores this quarter as compared to 12 crores in Q3 of last fiscal.

From a segment perspective the small molecule segment revenue was 469 crores up 27%. Biologic's reported revenue growth of 136% to 449 crores. Branded formulations sales were at 212 crores in Q3 up 36% and research services revenues was at 467 crores reflecting a growth of 20% compared to last fiscal. We incurred gross R&D spend of 106 crores during this quarter corresponding to 10% of revenue excluding Syngene. Of this amount, INR 77 crores is reported in the P&L.

We capitalized an amount of 29 crores related to our biosimilars and insulin analog development expenses. The gross spends are higher than last year primarily on account of increase spends in biosimilars and insulin analogs development programs. We booked a ForEx loss of 28 crores this quarter as compared to a 7 crores gain last fiscal. This loss is reflected in other expenses of the profit and loss statement.

Based on strong operational performance EBITDA grew 59% to 406 crores. EBITDA margin for this quarter was 26% as compared to 23% in the corresponding quarter last year. The improved performance was driven by a higher contribution from the Biologics segment driven by a high margin biosimilar sales. The growth in margin is despite a ForEx loss underlining strong operation delivery.

Core margins that is EBITDA margins net of licensing ForEx and R&D improved from 27% in Q3 last year to 32% this quarter. Net profit for the quarter increased from 92 crores last fiscal to 217 crores this quarter. This includes an exceptional gain arising on account of change fair value of anti-dilutive rights in our investment in U.S. base Equillium. Adjusting for the exceptional gain and associated tax net profit for this quarter was 211 crores reflecting a gain of 130% with the net profits margin as 14%.

Thus as you can see we have had a strong delivery - financial delivery this quarter and I am pleased that we have delivered the highest ever revenue and profit growth in absolute terms.

Now coming to analyzing our businesses on a segment basis, small molecules grew 27% over last year led by strong sales of code APIs and continued growth in our generic formulations business. A better product and customer mix resulted in robust API sales in various global markets.

We successfully launched Atorvastatin Calcium tablets in the U.S. market this quarter. And this launch along with traction in previously launched Rosuvastatin and Simvastatin formulations have helped the generics business deliver strong growth contributing to the overall growth of the small molecules business segment in Q3.

Coming to Biologics, this segment was the strongest performer with revenue more than doubling from last year growing 136% year-over-year. Segment margin saw a huge improvement year-on-year a negative single-digit percentage last year has now transformed to a solid 30% during the quarter thereby contributing to the consolidated margin improvement.

Our biosimilar Pegfilgrastim Fulphila launched by our partner Mylan in the U.S. continued to gain traction and along with continued performance of Trastuzumab in key emerging markets led to a strong performance for this segment.

The performance of insulin was led by sales in Malaysia and markets in Latin America. During the quarter Fulphila which is our biosimilar Pegfilgrastim received a notice of compliance from Health Canada's Biologics and Genetic Therapies Directorate. With this Fulphila is now approved in the U.S., EU, Canada and Australia.

Ogivri our biosimilar Trastuzumab also received regulatory approvals in Australia. Additionally we received regulatory approvals for biosimilar Trastuzumab in various other emerging markets. As you can see our biosimilar strategy is beginning to pay-off with the launch of our biosimilar in the U.S. and EU and we are greatly encouraged by the recent regulatory approvals of other key biosimilars in global markets. We are committed to play a significant role in enhancing access to a high quality affordable Biologics for patients across the world.

Now coming to branded formulations. The revenues for this segment which comprise sales, product sales both in India and UAE increased 36% as compared to last year. However, I must explain that this was largely on account of sales in the UAE due to channel stocking and going forward we expect growth in this segment to be in the mid-teens. Performance in India was led by the Metabolics, Nephrology, Immunotherapy and market access divisions.

During the quarter, we introduced our biosimilar Trastuzumab under the brand name CANHERA in UAE, and this is also expected to contribute to growth in the future. Research services had another strong quarter reporting a growth of 20% over last year. The growth during the quarter was driven by good growth in discovery services and increased traction in the biologics business. During the quarter Syngene commission, the new dedicated facility for Baxter, and extended its collaboration with Merck KGaA with a widened scope of engagements till 2022.

Now let me give you some product development updates. An update on the Novel's portfolio; our partner Equillium received U.S. FDA 'fast track' designation for EQ001 or Itolizumab which is our out-licensed anti-CD6 molecule for the treatment of acute graft-versus-host disease. Equillium is planning to initiate a Phase 1b/2 clinical trial in early 2019 called the cool clinical trial in early 2019 called the EQUATE trial, which will evaluate EQ001 for the treatment of patients presenting with acute GVHD.

So in conclusion, I would like to say that we have delivered a robust financial performance to date. We have witnessed all round growth across our business segments with biologics doubling year-on-year while the core segments of small molecules and research services also have registered robust growth.

Year-to-date earnings have more than doubled, led by the biologic segment driving high margin growth, demonstrating significant improvement of our quality of earnings. We expect to continue this momentum across all our business segments into Q4 and end FY19 on a strong note.

With this I would like to open the floor for question-and-answers. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] We take the first question from the line of Ronny Gal from Bernstein. Please go ahead.

Ronny Gal

If you don't mind I have three of them. The first one is on the Herceptin biosimilars trastuzumab. Your U.S. label does not include all the indication of trastuzumab? I'm assuming this has to do a little bit with IP issues. Would you be able to market the product for all indications where your settlement with Roche or is this something that we should expect to come to market more gradually one indication at a time until their patent expires?

Second, I was wondering if you can break for us the growth, the sequential growth you had between the September quarter and the December quarter in your biologic segment between Europe, United States and rest of world it kind of helps to think about, about what the growth might be.

And third Kiran, if you don't mind a bit more of a strategic question. We've heard a few company suggest that the U.S. market for biosimilars is not worth developing drugs for. And indeed we have seen a reduction in number of program's pending before the FDA. From a perspective of Biocon, is the U.S. market still viable, are we in a wait-and-see position how it will develop before committing to further clinical development? Where do you stand on this idea of developing more and Novel biosimilars for the U.S. market?

Kiran Mazumdar-Shaw

Ronny, let me start by answering your last question and then I'll sort of ask Paul and others to pitch in on the other questions. As you know Biocon is very committed and encouraged by the kind of noises and voices we are hearing about the absolute need for developing biosimilars to basically help the U.S. with balancing its own healthcare spends. And I think they do see biosimilars as a very integral part of health economics as it did with generics.

So I don't see any headwinds for us in terms of developing biosimilars for the U.S. market and we continue to remain very, very committed to increase and expand our pipeline of biosimilar products under development both with Mylan and with Sandoz. And of course we will also have our own portfolio going forward. So I don't think we are seeing any kind of negative signals from the U.S. market.

And as you know Biocon is also focused on a few Novel programs and I think this is something that we've always adopted strategically to have different kinds of businesses. Novels is still a very nascent business for us but I think as you can see I think biosimilars is an extremely strategic market segment for us and we will continue to invest in this and we believe that we have some early mover advantage.

Now why other people are opting out of this business is something I cannot comment on. But as far as we are concerned, we remain firmly committed. So I hope that sort of answers that part of your question.

Now coming to your first question on indications, I think I should remind you that ODAC actually has approved the drug for all indications extrapolated from the clinical data that we have done. So I think we are - as far as we are concerned we are approved for all indications.

And the Q2 to Q3 obviously is about some sales that we have made not just in Europe but also I think we've had some really good upsides from some of the emerging market sales. And that's why I think you're seeing this big jump.

Equally I think you're going to see moving forward as you know Trastuzumab now is ready for launch in Europe. We've of course launched our Semglee in Europe this quarter. So these are some of the reasons why you're seeing that jump in performance between Q2 and Q3.

Operator

We take the next question from the line of Prakash Agarwal from Axis Capital. Please go ahead.

Prakash Agarwal

Ma'am first question on the biosimilar sales you mentioned that across line items we'll continue to see the growth momentum. So understanding this biologics piece growth better, so during the quarter would we have a significant amount of Trastuzumab - sorry, the insulin which we have launched and also for the ongoing quarters it's coming from the insulin and the Trastuzumab in Europe?

Kiran Mazumdar-Shaw

So let me answer your question by saying that you know we have a biosimilars portfolio which of course straggles insulin's and mAbs and pegfilgrastim. And pegfilgrastim as you know has already been launched in the U.S. and it continues to sustain its momentum in the U.S. When it comes to Trastuzumab, you will start seeing numbers being reflected in Q4 and onwards, and then you're going to see of course the Semglee sales also being reflected as a part of the biologics business. It was already reflected last quarter but it will also continue to get reflected as we go forward.

In addition to that as you know we have a very large insulin's business in emerging markets and we have a growing presence in terms of our monoclonal antibodies biosimilars in emerging markets as well. So all this collectively is really boosting sales. And as you know, regulatory approvals keep coming in. So as new regulatory approvals come in, we are able to enter new markets. So overall we are seeing very good traction in our Biologics biosimilars business.

Prakash Agarwal

Yes, I understand that. I was trying to understand on the gross margin side that since Europe launches and emerging markets also picking up significantly, the last quarter Q2 that we saw 66% plus gross margins due to pegfilgrastim in U.S., would be the function of profit shares which keeps coming on in say quarter or two, and we see improving gross margins from here or this is the gross margin one should look going forward as well?

Siddharth Mittal

So, Prakash, gross margins are quite stable in Q3 compared to Q2 both if you look at the factsheet is roughly around 61.5% so I don’t see any change. Now in terms on a go forward basis will the gross margin improve, yes as we move forward and have more launches in the developed markets the gross margin would improve for the biologic segment and which would have positive impact on the consol gross margins.

Prakash Agarwal

Okay. From this base also we're expecting some improvement is what you are saying?

Siddharth Mittal

That's right.

Prakash Agarwal

And lastly on the R&D and tax rates, so R&D we were expecting it to inch up it has been flat so is it a timing issue and we do expect any ballpark guidance on the R&D for the year and next year and for the tax rate also? Thank you.

Siddharth Mittal

Yes. So the R&D expenses would definitely phase up we have said that it tends to be lumpy dependent on how the programs are progressing and how many number of programs we pursue. So on an overall basis the R&D expenses that we had at gross level for the nine month period has been 314 crores. I would expect the year to be around 450 crores, and for the next year obviously the expenses would go up as some of Sandoz pipeline molecule related expenses start inching up.

While we’ll see benefit of some of the expenses on Mylan collaboration products going down, but we will also have expenses for our novel programs and our small molecule ANDA programs. So from an overall perspective next year we should be over 500 crores in R&D at a gross level.

Prakash Agarwal

In that case, sir, why particularly low and is this the new normal?

Siddharth Mittal

No I would not say it’s a new normal on a cumulative basis we are roughly 19% tax paid for the group against a guidance of 23%, 24% earlier. We do have some benefit that we have got on the CapEx that we have done for which we get 35 EAC benefits. We’ve also got benefit of some of the carry forward losses we had in our U.K. entity which is now turning profitable because of the profits that we are receiving from launches in the emerging and developed markets. And I would say that for the next year you should factor in 22% to 24% of the tax rate at the group level

Operator

Next question is from the line of Damayanti Kerai from HSBC. Please go ahead.

Damayanti Kerai

My question is regarding Fulphila, so if you if you can indicate the progress in the U.S. market in terms of how much market share we have gained so far. And how we are looking for strategies to grow further from here so that’s my first question?

Arun Chandavarkar

So in terms of Fulphila market share I think we can say that we are tracking to plan there has been good growth month on month in terms of the market share gains. So I think it’s going exactly as we had anticipated it to.

Damayanti Kerai

Sir any number which you would like to share?

Arun Chandavarkar

See the numbers are there in the public domain from - it's whether data at IMS or Bloomberg and I would direct you to use this publicly available numbers. I think we had indicated that of the covered market for syringes we are seeing traction month on month. And I think we’re - at this stage we are in somewhere in the mid teens.

Damayanti Kerai

My second question is regarding our launch preparation for Ogivri and has there been any change from our previous strategy given that now we have three approved biosimilar for Herceptin in the U.S.?

Arun Chandavarkar

You're talking about launch in the U.S. or launch in EU?

Damayanti Kerai

In the U.S.?

Arun Chandavarkar

But the launch in the U.S. will track as per plan and the plan is determined by the settlement between Roche and Mylan it will go as per that plan.

Damayanti Kerai

But now like with two more additional approvals we are not changing any strategy compared to what we have earlier indicated or we've taken on?

Arun Chandavarkar

Since the competition in the biosimilar landscape has been known to everybody for quite some time, so it's easy to track that based on the progress in terms of Phase 3 trials and FDA approvals. So the competitive landscape in terms of who the key players are in key geographies is known and baked into our strategy and plan.

Damayanti Kerai

And my last question will be on small molecule growth. So one of the region we mentioned in the press release is that it’s due to increase in API space to India based customer who are delivering to the U.S. markets. So what kind of products are these which so increase in demand it’s like more commoditized or with a niche kind of products and are these mostly short term contracts or we have something in sustainable way also?

Arun Chandavarkar

I think - if you look at Biocon’s product portfolio basically it comprises of products where the competitive landscape from an API perspective is - because our focus is largely on fermentation derived molecules like the immunosuppressants and few of the statins and Orlistat and products like that.

Of course it also has a few key synthetic products and differentiated conflicts products. So clearly the growth has come across both our portfolios of statins and immunosuppressants both to India based clients who then formulate and have their ANDAs in the U.S. as well as to other customers.

So, our small molecules strategy is anchored very much to our product portfolio strategy of carving out differentiated portfolio based on immunosuppressants, fermentation based APIs and the like. And clearly we this as a continued business and we continue to see strong traction both in our older APIs, as well as in our newer APIs.

Operator

Our next question is from the line of Harith Ahamed from Spark Capital. Please go ahead.

Harith Ahamed

On the U.S. Trastuzumab launch that you talked about now that there are two other players with approval. Would you expect competition with the time of your launch or does your settlement gives you some kind of exclusivity for a certain period in the U.S. for Trastuzumab?

Arun Chandavarkar

Whilst we are privy to the Mylan-Roche settlement in terms of the timing we are not privy to the timing of our competition. So clearly I cannot answer that question as to what but in response to a previous question I mentioned that our assumption is that we know who the competition is for quite some time. The exact timing of their approval and launch depends on their progress and development. But clearly competition is baked into our strategies and plans.

Harith Ahamed

And biosimilar including launch in Europe, can you talk a bit about the progress so far and the early response, how many countries you have launched and what’s the kind of market share that we are targeting?

Arun Chandavarkar

No at this stage we cannot give you color in terms of the specifics except that we had a recent launch of Semglee in Europe. We can’t be specific in terms of - at this stage in terms of specific countries and specific markets shares in those countries.

Harith Ahamed

And last one from my side, can you give the CapEx number year-to-date excluding Semglee, and the guidance for full year FY 2019?

Arun Chandavarkar

I’ll ask Siddharth to response to that.

Siddharth Mittal

The year-to-date CapEx for Biocon has been roughly 400 crores and we expect to end the year around a little over 500 crores for all the projects that we are currently working on. Obviously the spends would continue in the coming fiscal year.

Operator

We take the next question from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.

Shyam Srinivasan

The first question is on the strategy, like you said the mid-teens now market share on your last biosimilar. If I look at for the other biosimilars in the U.S. so far, they have been struggling at 7% or so especially for the REMICADE biosimilars. So what explains our success of having getting much higher share in a shorter period of time. These biosimilars REMICADE have been there since 2016.

So is there something different about the drug or the innovator response which is helping us so much? That's the first question.

Arun Chandavarkar

Number one, I think any such early gains and all are clearly due to Mylan's strong presence in the U.S. Mylan drives our commercial strategy and I would say its – I would attribute it to Mylan.

The second thing I would point out is that when you compare and contrast launches for different products I would say you need to broadly factor in - I think there are specifics around each product that innovator different strategies maybe different, the therapy segment maybe different, something maybe diabetes, something maybe immunology, something maybe oncology.

So all of these dynamics play in terms of the channels through which you market this product, the segment which you're operating in and of course the innovator response.

Shyam Srinivasan

Arun, would that be one or our thinking that it's running, say, the case of Neulasta, it's more acute setting versus chronic settings in REMICADE, would – is there something that explains this in one factor or you think its like a combination of many things?

Arun Chandavarkar

Certainly the fact that acute settings do not depend on switching to gain mix rapid progress in terms of market share helps the segments, which are more in the acute therapy. That's certainly a factor in favor.

Shyam Srinivasan

My second question, I don't know whether I heard Kiran wrong; was he saying trastuzumab in developed markets we are preparing in 4Q, 2019 or did I miss here that at all?

Arun Chandavarkar

No. I think Kiran was referring to the Europe, EU.

Shyam Srinivasan

Okay. So there's a potential EU launch soon?

Arun Chandavarkar

Yes, yes.

Shyam Srinivasan

And this could be ahead of the – whatever the global. I thought the global settlement thought was all together.

Arun Chandavarkar

It's tracking to global settlement.

Shyam Srinivasan

My last question is on the Lantus in the U.S. Some of the patents have now expired. Can you just refresh on what the timelines on Lantus would be? Would it still be post 2020? Can you just give us some color there?

Arun Chandavarkar

Yes, we are on track. There's no change in the stated guidance in terms of the 30 months stay, as well as in terms of our timing to respond to the FDA's queries on the bridging study. We are tracking to the timelines previously stated.

Shyam Srinivasan

If I can squeeze last one. Other expenses, even if I strip out 28 crores of FX losses, had sequentially jumped significantly to about, say, 200 crores. So what is I'm looking from the factsheet. What explains non FX jump in other expense? Thank you.

Arun Chandavarkar

Well, Siddharth can give you color on this. I think at a high level as you know other expenses would have the ForEx component in it, in expenses. And as well as there is a component of wherever we have cost and profit share relationships with partners there is element where we remit profit share in the markets we market to the partner. So it's a combination of all three.

Operator

Next question is from the line of Surya Patra from PhillipCapital. Please go ahead.

Surya Patra

So I just wanted to have a sense on the future pipeline, biosimilar pipeline. So, in that, one of the long-awaited product is the rh-Insulin. What is the progress there for U.S. market and what is the timeline that you can indicate now?

Arun Chandavarkar

So clearly I think if you look at the commentary on the insulin especially in the U.S., all have been extremely favorable and supportive for the need for affordable insulin in the U.S. And we are clearly very much an active participant in this whole discussion about how do we get our rh-Insulin fast tracked in terms of regulatory approvals and launches in the U.S. You know that we had previously announced that we are in partnership with Mexican company, Lab Pisa, for the U.S. rh-Insulin.

And clearly our development is tracking to that. Whether this development can be accelerated in light of the favorable commentary from the U.S. government and regulators, is something that we are closely watching and actively participating.

Surya Patra

But is there any time line in – like 2020 opportunity or beyond that?

Arun Chandavarkar

I would say it's probably about – I mean if things go – a baseline model might be about two to three years, but if anything gets fast tracked we can see if that is possible. But right now for the baseline I would say its about two to three years.

Surya Patra

And regards the Adalimumab, so what one should really believe about U.S. launch possibly - and so anything on that it would be great.

Arun Chandavarkar

Mylan has previously disclosed the settlement with AbbVie where the U.S. launch of Adalimumab will not happen before somewhere in the middle of 2020.

Surya Patra

Sir, it's July 2023.

Arun Chandavarkar

Yes. So nothing will happen prior to that.

Surya Patra

And couple of these bookkeeping items that I wanted to know. Sir, this Branded Formulation business, the way that we have witnessed a strong traction here. So, here I just wanted to understand how the revenue is booked. Since that is a JV, so the – just the profit shares would be coming in as one line item, that is one.

And also we are seeing traction in the revenues. So how is that booked? That is one about the accounting fact. And secondly, the economic trends from the Adalimumab for European market where is that getting factored in, which line item that is getting factored?

Arun Chandavarkar

Surya, we've had a nine-month growth in Branded Formulations of 13% and even though this quarter was a 37% growth compared to last year and 29% growth compared to previous quarter, I think even alluded to that for the full year we would still track to mid-teen kind of growth. So this quarter we had channel - higher sales to the channels in U.A.E., which resulted in a one-time kind of increase. So you shouldn't really take that as a new normal and look at the overall growth levels.

Now, in terms of the revenue recognition, when we sell to our partner – from U.A.E. entity sales to our end-customer the top line is booked in our top line – in our revenues for the segment.

Surya Patra

It is the manufacture and supply revenues that we book here and the profit share that comes for the revenue what they sell there?

Siddharth Mittal

Yes, that comes through the JV line.

Surya Patra

And regards to that economic interest over Adalimumab, sir.

Siddharth Mittal

Yes. It's in the Biologics revenue line.

Surya Patra

And sir, can you give some sense about the Malaysia plant, now how is that, whether it has achieved a breakeven? And so considering that what is the - are we aware of the other expenses that is going to be in the subsequent period let's say next year?

Siddharth Mittal

See, the facility what we had said at the beginning of the year while we had a small loss last year, we said that here we expect to be breakeven. I think we will not break up the entity level P&L on a quarterly basis. Once the full year numbers are published, the numbers will be on our website where you can see the numbers but we are on track to be around that breakeven number.

So given that we have one more quarter to go, Mylan has recently launched Semglee in the Europe and fourth quarter numbers are still to commence. I would say that, yes, we are on track.

In terms of the expenses, I think again we had mentioned that the fixed expenses including depreciation and interest for that facility is to the tune of $50 million. Next year obviously these fixed expenses would go up in line with the cost increase that would happen for all the operating expenses there.

Surya Patra

But that would much lesser than the revenue growth that we can see from that base?

Siddharth Mittal

Absolutely.

Surya Patra

Yes. And just last one question on the CapEx, given the 200 – about $200 million kind of CapEx of Syngene and our own growth of CapEx that we are planning. So next year what is the CapEx, the console CapEx that it could be?

Siddharth Mittal

Well, I would not comment on Syngene and you should direct Syngene CapEx guidance questions to the Syngene management.

Surya Patra

Yes. So that is my answer. So about Biocon put together on consolidated basis.

Siddharth Mittal

So, I would say that the last two fiscal years, Biocon's CapEx has been approximately 600 crores. This excludes the intangibles that we capitalized for the R&D expenses. And on a go forward basis I would expect let's say for the next fiscal the same level of spends to be there.

Operator

We'll take the next question from the line of Nitin Agarwal from IDFC Securities. Please go ahead.

Nitin Agarwal

Sir, two things. One is on the biosimilar sales in emerging markets. Like they're - typically, they're in the developed markets. Would they be linear? Should we assume like a linear progression in this business or there is going to be a large-ish component of tender sales, where there could be lumpiness from a quarter-to-quarter basis on an overall basis?

Arun Chandavarkar

Yes. There are some businesses where you can expect a fairly linear sale. For example, we have the offtake agreement in Malaysia, which has a far greater degree of predictability. So wherever their markets have a component of a strong proportion of retail business it tends to be far more predictable. Where it is tenders because there - and our current revenue mix is a mix of both tenders and retail in emerging markets.

So there is that element of unpredictability in tenders but that unpredictability in tenders for a specific tender, the tenders are not like for short durations like three months or six months. If you get a tender or you don't get a tender usually translates to a full year or two year period.

Nitin Agarwal

And then what will be typically qualitatively a split? It's more skewed towards emerging markets, towards tenders in general or it's more towards regular linear sales?

Arun Chandavarkar

The emerging markets are a little bit - but what happens is that since we have diversified the risks by being present in multiple countries the granular level of lumpiness doesn't reflect in the emerging market sort of consolidated number. So, because we have multiple products in across multiple countries and some countries have more than one tender.

Nitin Agarwal

And sir, on the point - the scale-up that we've seen in the biosimilars seen in the Basalog business, obviously, peg in U.S. would have contributed and there's obviously been a pretty saw in - a pickup in momentum even in the emerging markets over the last couple of quarters. But it's largely - from a product perspective, it's largely Trastuzumab in emerging markets which has driven up the numbers, contribution of emerging markets. Or there are more other biosimilars apart from Trastuzumab contributed meaningfully over the last two quarters?

Arun Chandavarkar

I think Insulin Glargine and Trastuzumab is where our biosimilars sort of portfolio in emerging markets is currently focused on, and so clearly all of these tracking doing well across all the three molecules. So I would say there's a contribution from all molecules. A specific molecule may contribute differently in a specific country but at an aggregate emerging market level all three have contributed significantly.

Nitin Agarwal

And then Siddharth, on these other expenses issues that we've talked about earlier, I mean, is it fair to assume that as the Biologics sales increase, I mean – so is it fair to say that increase in other expenses is kind of linked to the increase in Biologics sales and as these sales sort of keep picking through – we'll keep having a proportionate or kind of some sort of increase, linked increase to other expenses also?

Siddharth Mittal

That's correct. So other than the ForEx the other selling expenses in profit share will be directly linked to sales increase and not necessarily linearly linked, but yes, as the sales go up in the coming years and coming quarters we would see an increase in the expense line.

Operator

Next question is from the line of Dheeresh Pathak from Goldman Sachs. Please go ahead.

Dheeresh Pathak

Just understanding the other expense again, so the ForEx element is how much? And this is in Biocon books, right, not Syngene?

Siddharth Mittal

So the consol of ForEx last - during the quarter was 28 crores. And all of it actually did come from Biocon.

Dheeresh Pathak

And the nature of this is ForEx debt or it is current liabilities or what is it?

Siddharth Mittal

Current assets and liabilities we stated at the December exchange rate. As you know that in September end the dollar was tracking around 74 rupees compared to almost 70 rupees in December, so that 4 rupee movement led to a loss. Now on a cumulative basis you should see that while we had also gained in the first two quarters as the rupee had strengthened there. On a cumulative basis we have - on the 35 crore positive ForEx gain.

Dheeresh Pathak

And sir you also said that profit share you are showing in other expense can you just expand on that like which markets are these and can you just expand on that a little bit more?

Siddharth Mittal

We cannot breakup by markets but as Arun said that these the variable we have multiple partners including Mylan wherein we lead the sales and then we share the partner share of profit and which is booked in the other expense line.

Dheeresh Pathak

So my understanding was wherever we have entered into partnership it is mainly for marketing expertise of the partners but you are saying you are marketing so you’re sharing with the partner for what because manufacturing is done by Biocon as I understand. So partner is getting and typically partners are front end partners if my understanding was correct?

Siddharth Mittal

So it is Mylan Nitin, so Mylan is a major component of this in certain territories we - in certain emerging markets so where we sell and then we share profits with Mylan.

Dheeresh Pathak

You sell, you share profits with Mylan, understood, understood. And sir one other thing last question, the intangibles underdevelopment they were if my understanding was correct they were mainly linked to Herceptin and Glargine. Now you’ve commercialized both in certain markets not obviously the largest market which is U.S. So have you allocated certain cost and you're depreciating them or the full cost is linked to U.S. and you will amortize when you get the U.S. approval.

Arun Chandavarkar

Just to correct its Glargine, Trastuzumab and Bevacizumab cost of capitalize for these three molecules. We have started amortizing cost for Glargine in Europe since Mylan has launched. It also includes by the way the amount that our share of amount is paid out to Fuji in Japan for in-licensing adalimumab for which again, the amortization has started.

For Trastuzumab in Europe since the launch is planned in this quarter four, the amortization will begin in quarter four. And for U.S. the launch is in next fiscal year so once the launch happens the amortization would begin. But I should also say that while the depreciation or amortization is one aspect, you should understand that we continue to incur cost on the programs even after they are approved in the U.S. and Europe because of the commitments are given to the regulator and certain additional trials you need to do post approval to generate data now those costs also get capitalized.

Dheeresh Pathak

But the bulk of the cost and in your allocation if you allocate region wise let’s say on a molecule basis region wise they would have been to the U.S. market right is that fair?

Arun Chandavarkar

Absolutely, the way we break - split it up between U.S. and Europe is basis the market size of the drugs. Typically you’ll see a two is to one or three is to one location between U.S. and Europe for most of our biologic drugs.

Operator

We take the next question from the line of Charulata Gaidhani from Dalal and Broacha. Please go ahead.

Charulata Gaidhani

Congrats on the quick set of numbers. My question pertains to the outlook for price erosion as more and more players enter the biosimilars market with Trastuzumab already having three approvals?

Arun Chandavarkar

So what I would say is that clearly all our strategies in terms of pricing in terms of strategies to gain market share, a factor in this. Now I cannot give you an outlook other than saying that yes in the biosimilar or generic space prices don’t tend to go up but in terms of - it’s a fact that overtime prices would come down.

Now if your question is how rapidly will they come down I think it really depends on markets tenders or retail and number of competitors out there. And the psychology of the competitors whether people are keen to gain volume at the cost of eroding value or where people want to sustain market share.

So it’s a very dynamic play it’s too early to hazard a guess in terms of specific guidance. I don’t there is enough experience out there and like the ANDA business this is exactly what the trend would be.

Siddharth Mittal

And just one thing that I would like to add specifically for Pegfilgrastim in the U.S. as when Mylan had launched the product they had announced the discount to the innovator and Coherus which recently got the product and approved and launched the drug in the U.S. also publicly announced that they will be their whack will be at the same level as Mylan.

So you can see that in the initial year that no 2 molecules would have a similar level of pricing as far as the competitive dynamics are concerned. So each molecule with different number of players might waive very differently.

Charulata Gaidhani

And my second question can I have the sales and PPT for Malaysia?

Arun Chandavarkar

I had mentioned earlier that we don’t breakup at a NTT level on a quarterly basis once our annual accounts are accounts are audited the annual accounts are published for standalone subsidiaries on our website so by May of 2019 you’ll get the details financials for Malaysia on our website.

Charulata Gaidhani

And just like you mentioned for BFI, mid-teen growth on an annual basis. What would be a sustainable growth for small molecules?

Arun Chandavarkar

So for small molecules nine months growth has been a 20% I think in Kiran’s closing remarks he had alluded the performance that we have witness here to-date is something that we can expect going into quarter four. And beyond quarter four for giving a guidance for next year would not be possible at this time.

Operator

Next question is from the line of Ranjit Kapadia from Centrum Broking. Please go ahead.

Ranjit Kapadia

Hearty congratulations for good set for numbers my question relates to Pegfilgrastim what is the market size in U.S. and how many players are there. And second question relates in-licensing of products and UAE and how is the scenario for Januvia and Janumet?

Siddharth Mittal

Sure on Pegfilgrastim we know this is a $4 billion to $5 billion market overall with most of it in the U.S. Currently there are the in addition to the originator product, there’s ourselves and one more biosimilar in the market.

Arun Chandavarkar

And in terms of in-licensing products from Novartis you mentioned Januvia and Janumet they are doing quite well our brand is Jalra.

Kiran Mazumdar-Shaw

No we don’t have I just want to clarify that our products that we are marketing in UAE is not Januvia we have got Vildagliptin under brand name Jalra and that’s doing fairly well and we will continue to look at in-licensing products for the UAE market.

Ranjit Kapadia

And any possibility of increasing this business in the UAE?

Kiran Mazumdar-Shaw

I just mentioned that our Trastuzumab got approved and we will be launching that Trastuzumab under CANHERA brand name and we spent that also to have a good contribution to our UAE business.

Operator

Next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Sameer Baisiwala

Arun can you again refresh us on the Glargine for the U.S. market you mentioned about the addressing the CRL as well as completion of bridging studies for the sites space?

Arun Chandavarkar

So Sameer I think what I mentioned is that whatever we had stated in our previous quarter continues to remain true we are on track in terms of bridging the manufacturing site from Bangalore to Malaysia the information requested by the FDA we are on track in terms of developing and timing of submitting that data and of course as you know parallel the 30 months stay that’s also continues to track as per previously stated timelines.

Sameer Baisiwala

What I am asking I guess, is when you say it’s on track what is the time, I mean are you looking at one quarter later or two quarter later to submit the data for both CRL and bridging studies?

Arun Chandavarkar

So Sameer, the 30-month stay extends into March 2020. So we are tracking to that, and we have been working with the FDA under their agreed guidance and we are - our bridging studies are tracking to finish in time so that we can - we can we be in time as soon as be 30-month stay is over.

Sameer Baisiwala

And then you say that you mean to say you’ll get the approval at the end of 30 months?

Arun Chandavarkar

Yes. That’s what we are tracking for.

Sameer Baisiwala

And second question is on is bevacizumab, when do you expect this market to open up in the U.S? And second, do you think you could be in time for the first wave of launches?

Paul Thomas

So I think - I will. This is Paul, I wouldn’t want to comment very specifically on that since I think Roche has talked about, about settlement discussions being in various stages and not being able to comment specifically there. I think there are many moving parts there. I do know that they have - they have mentioned various things in 2019, but that there are settlement discussions in progress. So I think we’ll leave it at that.

Sameer Baisiwala

And when you say this settlement discussion you were referring to others or yourself?

Paul Thomas

I’m just referring to Roche’s general comments. Nothing, I’m not saying anything specific, I won’t make any specific comments about us. I’m just referring to Roche, just repeating Roche’s comments.

Sameer Baisiwala

And the third question is on Humira. For your own product have you developed both the low concentration and the high concentration product?

Arun Chandavarkar

That’s 40mg by 0.4 ml is the one I specifically am asking for.

Paul Thomas

Right. So right now the launch is with the lower concentration product.

Sameer Baisiwala

Yes, but do you intend to develop the higher one as well or…

Paul Thomas

Yes. I think that would be, that would be. That would be in development, but we won’t give specifics about timing about that now.

Sameer Baisiwala

And just one final on the capacity side, I think, in general the company has mentioned that your aim for 25% market share and that’s what you are geared for your capacity are geared for. Now that for Fulphila you are hitting mid-teens or maybe high teen market share. Do you think you can take it above 25% or your capacity could be a constraint there?

Arun Chandavarkar

So I think what we have said is that we always have day light capacities to our market plans and we don’t build normal capacities upfront across our portfolio, we build them in a modular way. And that applies to all our programs and we continue to track to ensure that our capacities come online as we gain market share or as we get approvals in other countries. So I really can’t be more specific than that due to competitive reasons.

Sameer Baisiwala

Okay, which means you will not get capped at 25% market share for Fulphila if there’s a market opportunity?

Arun Chandavarkar

Yes, so as I say, I don’t want to give a specific answer. All I’m saying is our capacity plans dovetail to our anticipated market plans.

Sameer Baisiwala

And just final thought on the new mAb facility, when do you think, when do you expect that to get commissioned.

Arun Chandavarkar

So I think we would be looking at commissioning the facility in 21, in the year 2021.

Operator

We take the next question from the line of [Rohit Shan] Individual Investor. Please go ahead.

Unidentified Analyst

I had a quick question. I think in 2014, you guys have put up a five year plan with targets for FY 2019. So I was just wondering are you guys going to do the same thing again in terms of sharing your vision for the five years coming up? Thanks.

Arun Chandavarkar

We have not yet made the decision. We will let you know by once we close this fiscal year if you’re going to give us guidance, a number guidance for the next five years period.

Operator

Next question is from the line of Nitin Agarwal from IDFC Securities. Please go ahead.

Nitin Agarwal

So in the past, we talked about value locking the biosimilars business. There are two things. One is, a, with the biosimilars revenues and profitabilities sort of contribution fee picking up and, at the same time, our R&D expenses are likely to go up, I mean do we still see a need for value locking in this business as a means to fund for our future growth in biosimilars?

Arun Chandavarkar

Yes, we are in investment mode. We have been investing heavily as you know in the CapEx and R&D. And as our collaboration with Sandoz and as we have developed also our own pipeline, definitely the investments on a go-forward basis would go up. So we have a debt on our balance sheet. We would look at equity also for our biologics business either in form of a private equity or in form of an IPO at future point in time.

Nitin Agarwal

And Siddharth, just probably on housekeeping. In these segments, you know, you carve out your business into segments and give us some sense on the EBIT number which is pretty helpful. Just one thing, in the current quarter, there's a pretty large amount sitting in other unallocable expenses. What would that be?

Siddharth Mittal

That has 28 crores of ForEx expense if you take that out, it is other than expenses on a quarterly basis is somewhere between 45 crores to 50 crores at a concerned level. Last quarter if you actually look at quarter two, it was 13 crores, because we had a ForEx gain of 29 crores. So when you add back that you have the same numbers of 45 crores of unallocable expenses, which primarily has expenses like depreciation, corporate costs other unallocable costs specifically mainly the verticals.

Operator

Next question is from the line of Surya Patra from PhillipCapital. Please go ahead.

Surya Patra

Yes, just wanted to have some sense on the - this API or the small molecule API molecule opportunities. So given the kind of a development that we are witnessing from the China side and on the back of that what opportunity that is visible for whoever is there in that small molecule APIs that seems quite strong and since sustaining also.

So can you just, you have also seen that progress in terms of inspection and all that for your plant. So now, considering the pipeline or activities that you are doing there and the growth potential what you are anticipating there. Can you please add anything on that front?

Nehal Vora

Nehal here. So we certainly see this region, but it’s too early for us to comment. I think if we want to get into this region, it’s going to be a long drawn process for us. So we will comment at an appropriate time.

Surya Patra

So as of now, how big is that opportunity in the overall small molecule business for us currently?

Arun Chandavarkar

Are you talking about an opportunity in China?

Surya Patra

No. So that is anyway is a driving force that I see. But currently in the revenue, small molecules revenue, this API piece, what in the plant, what we acquired sometime back, and what is kind of…

Arun Chandavarkar

No, let me step back. If your question is about outlook generally for APIs, and not specifically about China, I think we have already - our focus in the API business is clearly around technological differentiated products, whether it’s fermentation, whether it is complex, whether it is potent. As you know we had previously announced commissioning of our potent oral solids formulation facility. Clearly, that will be serviced by in-house APIs.

So this differentiated portfolio of APIs is something that we will continue to invest in and grow our pipeline. And I think there is quite a bit of headroom for growth based on our selected portfolio.

Second comment I would like to make is that I’d also said that from an API perspective that is a certain part of the business opportunity. But increasingly going forward, the small molecules division would also focus on growing the generic formulations opportunity and so rather than leaving a large chunk of the value on the table, if Biocon can capture a big chunk of that for specific APIs that will be another significant opportunity for growth for Biocon.

Surya Patra

Sir, please correct me. My understanding was that the plant what you had acquired, it was not about for fermentation API capacity, it was that the other…

Arun Chandavarkar

Correct, so those are the potent APIs.

Operator

Next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.

Prakash Agarwal

Yes, just one clarification on the profit share that we get from the partners especially for peg. So since we launched and got some share in Q2 and Q3 now, so are these with the lag and do we expect higher numbers going forward as the market share is increasing in Q4 and onwards?

Arun Chandavarkar

So, when we supply the material obviously we’ll get the profit share at the lag because we book profit share once Mylan sells to its customers. Would it go up or down that is dependent on the number of launches. As we've mentioned that there have been some recent launches in quarter three. There will be additional launches in quarter four, so the profit share would go up.

Prakash Agarwal

And it would be a function of getting market share and obviously the pricing?

Arun Chandavarkar

Absolutely.

Prakash Agarwal

And this is applicable for the partnered Humira launch also in Europe, so that is not one time, it will continue in that bucket?

Arun Chandavarkar

Absolutely.

Prakash Agarwal

And with more launches which you had mentioned trastu in Europe and maybe peg, so this momentum what you mentioned or Kiran mentioned in opening remark that is leading to a higher growth even Q-on-Q?

Arun Chandavarkar

In addition to increased sales in emerging markets.

Operator

Thank you very much. Well, ladies and gentlemen that was a last question for today. I would now like to hand the conference over to Mr. Saurabh Paliwal for his closing comment.

Saurabh Paliwal

Thank you, Janice. Thank you all for joining us today. Do you have any further follow-ups please do get in touch with me. Till then the next quarter have a wonderful day.

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