Biocon Ltd. ADR (BCNQY) CEO Siddharth Mittal on Q3 2020 Results - Earnings Call Transcript

Jan. 24, 2020 7:40 AM ETBiocon Ltd. ADR (BCNQY)
SA Transcripts profile picture
SA Transcripts
130.79K Followers

Biocon Ltd. ADR (OTC:BCNQY) Q3 2020 Earnings Conference Call January 24, 2020 10:30 PM ET

Company Participants

Saurabh Paliwal - Head of Investor Relations

Kiran Mazumdar-Shaw - Chairperson and Managing Director

Christiane Hamacher - Chief Executive Officer and Managing Director, Biocon Biologics India Ltd

Paul Thomas - Chief Commercial Officer, Biocon Biologics Ltd

M.B. Chinappa - Chief Financial Officer of Biocon Biologics India Ltd

Sundar Ramanan - Associate Manager, Regulatory Affairs at Biocon Ltd

Shreehas Tambe - Chief Operating Officer

Alexander Zach - Global Head Market Access & Policy at Biocon Biologics Ltd

Siddharth Mittal - Chief Executive Officer and Joint Managing Director

Conference Call Participants

Surya Narayan Patra - PhillipCapital

Damayanti Kerai - HSBC Securities & Capital Markets Pvt Ltd.

Vikram Chandrashekhar Agrawal - Valuegen Investment Managers Private Limited

Shyam Srinivasan - Goldman Sachs

Prakash Agarwal - Axis Capital Limited

Sameer Baisiwala - Morgan Stanley

Charulata Gaidhani - Dalal & Broacha

Hari Belawat - Techfin Consultants

Cyndrella Carvalho - Centrum Broking

Harith Ahamed - Spark Capital

Nitin Agarwal - IDFC Securities

Operator

Good morning, ladies and gentlemen. Welcome to the Biocon Limited Q3 FY 2020 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

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

Saurabh Paliwal

Thank you, Lezanne, and good morning, ladies and gentlemen. I welcome you to Biocon’s third quarter and nine months fiscal 2020 earnings conference call. Before we get started, I would like to remind everyone that replay of today’s discussion will be available for the next few days about 60 minutes post the conclusion of this call. The call transcript shall be made available on the website in the coming days.

As part of today’s presentation and to discuss the company’s business performance and outlook, we have with us the leadership team at Biocon, comprising Dr. 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 clarifications, please do get in touch with me.

With this, I would hand over the call to Dr. Kiran Mazumdar. Over to you, ma’am.

Kiran Mazumdar-Shaw

Thank you, Saurabh. Good morning, everyone. And since it’s – we are still in January, I’d like to wish everyone a very happy New Year. Let me start with key Board and Management updates. The Board has approved my appointment as Executive Chairperson of the company for a period of 5 years subject to shareholders’ approval, effective April 1, 2020.

Further, the Board has approved the change in designation of Mr. Siddharth Mittal from Joint Managing Director to Managing Director of the company effective from April 1, 2020. And accordingly, Mr. Siddharth Mittal will be the Managing Director and Chief Executive Officer of the company, effective April 1, 2020.

Mr. M.B. Chinappa has been appointed Chief Financial Officer of Biocon Biologics effective January 6, 2020. He was earlier the CFO at Syngene.

Now, coming to key business highlights for the quarter, Ogivri, which is the brand name of our biosimilar Trastuzumab, co-developed with Mylan, was launched in the United States. It is the second biosimilar from our partnered portfolio commercialized in the U.S. after Fulphila, which was biosimilar Filgrastim, which was done in 2018.

Ogivri was also commercialized in Canada and additional EU markets by Mylan. In November, Biocon and Mylan’s supplemental Biologics License Application for Pegfilgrastim Drug Substance to be manufactured at Biocon’s new Biologics manufacturing facility was approved by the U.S. FDA. This approval will enable Mylan and Biocon to scale up capacity multifold and address the growing market opportunities in the U.S. and other global markets for the products.

Biocon and Equillium expanded their collaborational license agreement for Itolizumab to grant Equillium exclusive rights for developing and commercializing Itolizumab in Australia and New Zealand. Another important development was that earlier this month Activ Pine LLP, an affiliate of True North Fund has infused $75 million in Biocon Biologics. This is a primary equity infusion for a 2.44% stake in Biocon Biologics at an equity valuation of $3 billion and an enterprise valuation of $3.5 billion on a pre-money basis.

Biocon Biologics will deploy this money towards CapEx investments as well as on R&D. Moving on I will now discuss financial highlights for this quarter. Total revenue was up 14% at INR 1,784 crores. Revenue from operations stood at INR 1,748 crores, up 13% from last year this quarter.

From a segment perspective, Small Molecules’ reported revenues of INR 544 crores, which is up 16% from last year. Biologics continued its stellar growth with 35% year-on-year growth at INR 588 crores this quarter. Branded Formulations were at INR 157 crores and Syngene revenues were up 11% at INR 519 crores.

We recorded a ForEx gain of INR 15 crores this quarter as compared to a loss of INR 28 crores in Q3 of last year. Gross R&D spends however were sharply on the rise. They were at INR 155 crores for this quarter, ex Syngene, and of this INR 131 crores was reported in the profit and loss and balance sheet. And the balance has been capitalized. The capitalized amount related to various biosimilar development programs.

The increase in R&D expenses as compared to last year is on account of higher spends across small molecules, biosimilars and novel development programs.

EBITDA for this quarter stood at INR 480 crores, which is an increase of 18% over last year. And EBITDA margins were at 27%, compared to 26% last year. Core EBITDA margins, which is net of licensing, impact of ForEx and R&D, stood at 33%, which is up from 32% reported last year.

Net profit for the quarter stood at INR 203 crores. But this includes a tax impact of certain exceptional items, primarily pertaining to a transfer of development and commercialization rights of Fusion Proteins to our wholly-owned subsidiary, Bicara.

Adjusted for this impact, net profit for this quarter stood at INR 225 crores, which is 6% up from last year. And adjusted net profit margin stood at 13%.

Let me now discuss our business performance this quarter. Coming to Small Molecules, the Small Molecules segment reported strong revenue growth of 16% over last year, with revenues growing from INR 469 crores to INR 544 crores.

Revenue growth was led by strong performance of Generic Formulations and supported by growth in immunosuppressants and specialty API sales.

I’m pleased to report that the Generic Formulation business cross the INR 100 crore mark in revenues for the first time this quarter. Increased market share across our portfolio of Generic Formulations led to strong year-on-year growth. For the first 9 months this fiscal, this segment grew 19% over a similar period last year to INR 1,553 crores. PBIT margins for the Small Molecules segment were 19% for the quarter as compared to 21% last year. Largely on account of higher R&D expenses during the quarter. For the 9 months period, PBIT margin were at 21% against 20% reported the previous year.

Now coming to Biologics. The Biologics segment maintained it strong growth momentum in Q3 FY 2020 led primarily by Trastuzumab and Filgrastim. Revenues increased 31% from INR 449 crores to INR 588 crores. On a 9 month basis, segment revenue grew 50% from INR 1,066 crores to INR 1,594 crores. Growth again was led by these 2 leading Biosimilars, Pegfilgrastim and Trastuzumab in the United States.

Adalimumab in EU also contributed to this as well as Trastuzumab in several emerging markets. PBIT margins for the Biologics’ segments were 25% for the quarter and 29% for the 9 months. For the quarter benefit from the recent launch of Trastuzumab in the U.S. was negated by increased cost of operations with respect to remediation of the Malaysia facility, higher R&D spends and deferment of sales.

We expect enhanced performance on the Biologics segment in the fourth quarter with continued sales of Trastuzumab and the full higher impact of Pegfilgrastim both in the U.S. and other regions, driving revenue growth and improved profitability.

I’d now like to provide specific update on the U.S. Insulin Glargine program. We have recently responded to the CRL received from the U.S. FDA and are working closely with the agency to address all questions related to the Malaysia facility clearance. If you recall the CRL largely pertains to this. Post our submission, the FDA has notified us that it plans to inspect our Malaysia Insulin’s facility in February this year. In parallel that have been a recent legislation in the U.S. mandating the continued review of pending insulin marketing authorization applications under Section 505 of the Federal Food, Drug And Cosmetics Act after transition of insulin to be regulated as Biologics that is happening in March.

And with the recent legislation in place, the NDA to BLA transition for certain Biologics, which is scheduled, post March 23, 2020 will not affect our application review by the FDA. And FDA has set a target action date for our application in June and we remain on track for mid-2020 launch in the U.S. I’ve stated previously by Mylan.

Coming to the novel portfolio update. Our first-in-class oral prandial insulin molecule Tregopil has commenced multiple ascending dose study in people with Type 1 diabetes in Germany. This study is being done in partnership with the U.S.-based JDRF or the Juvenile Diabetes Research Foundation, a global – a leading global organization that funds Type 1 diabetes research and advocacy worldwide. We have expanded the scope of our licensing agreement with our partner Equillium for Itolizumab, to include Australia and New Zealand.

Equillium had originally secured exclusive rights to develop and commercialize Itolizumab for the U.S. and Canadian markets in May 2017. Equillium is developing the asset for the treatment of acute graft-versus-host disease, severe asthma and lupus nephritis.

Coming to Branded Formulations, the performance of this segment remained subdued. The business reported revenues of INR 157 crores in the quarter and INR 419 crores for the 9 months. The performance of India has remained flat, while we continue to face challenges in the UAE. However, there are some green shoots in the UAE with respect to some of the Biosimilars.

Coming to Research Services. Syngene reported revenues of INR 519 crores, a growth of 11% over last year. Performance for the quarter was mainly driven by strong performances from Discovery Services and Development Services. Revenue for the 9 months grew 9% to INR 1,405 crores, continuing its commitment to offer leading edge science capabilities, Syngene has extended its Biologics discovery and preclinical research capabilities in cell therapy and innovative cell based approaches to treating cancer, including CAR-T therapy. Syngene gains two significant regulatory approvals this quarter, demonstrating ongoing commitment to operate at global standards.

In summary, Biocon has delivered a strong all-round operational performance in Q3 and the first 9 months of fiscal 2020. The Biologics business will continue to be the growth driver for Biocon for the rest of the year.

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

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Surya Patra from PhillipCapital. Please go ahead.

Surya Narayan Patra

Pvt Ltd.

Yeah, congratulations for the great set of numbers. And just wanted to clarify this, whether we have started getting the benefit of the capacity addition this quarter and the launch of Trastuzumab in U.S. in this quarter already?

Christiane Hamacher

This comes to Pegfilgrastim, we got our expanded capacity approved in November. And it’s a bit early to comment on the market gains within this short period of time, because we started supplying from our expanded capacity in December.

We are actually now targeting to broaden patient access across the United States, including segments like the 304B and that’s 1/3 of the market in the United States. So we are very much looking forward to our significant growth in the coming quarters in this segment in the United States.

Biosimilars overall in this segment for Pegfilgrastim only controls about 29% of the market, so there is a huge opportunity still remaining for biosimilars to grow. And we are very well positioned to capitalize on that.

Surya Narayan Patra

Pvt Ltd.

Okay. And anything on the – could you please provide some clarity, how – what are the kind of a trajectory that we should be seeing for the Pegfilgrastim, which the recent period has seen some kind of a dip in terms of market share and all that? Hopefully, the new facility would be benefiting that way.

Paul Thomas

Sure, yeah. Thanks. Thanks, Surya. This is Paul Thomas. So, yes, we’ve seen the supplies from that. They’ve started to go on to the market, I think, as Christiane has said, we’re starting to – we’re definitely taking advantage of that. And we – it’s very early now for the market data to come in. But we have seen increases in both prescriptions and volume share, and we expect this to continue.

We definitely look for a new trajectory going forward as we take advantage of a continued market opportunity and the good relationships that are there and the need for the product.

Christiane Hamacher

Let me also address Trastuzumab. We are very pleased with initial reception as this product has [increased] [ph] in the U.S. market. We are coming into the market, actually Mylan, and Mylan have good relationship with a spectrum of customers that are [essential oncologists] [ph], the clinics, the GPOs, over the last and a half year. And we have already demonstrated with Pegfilgrastim our successful launch there.

Customers know that we are the only company that has two biosimilars, Pegfilgrastim and Trastuzumab. And with Trastuzumab, we have no associated legal risks as we are operationally very well prepared, because we are approved for both, the 150 milligram and the 420 milligram.

While we expect that the market share shifts will be more gradual, because of the length of treatment durations for patients with our marquee partner, we are very well prepared to compete in this market share, in this marketplace, and to be a major player when it comes to Trastuzumab in the United States.

Surya Narayan Patra

Pvt Ltd.

Okay. Just one more question on the gross margin, ma’am. So we have seen, obviously, sequential improvement on the Biologics sales with the new launches, congratulation for that. And – but simultaneously there is, some since last couple of quarters, the gross margin scenario has to some extent margin, and basically so whether the margin profiles within the Biologics product to product differs or anything else to infer from this?

M.B. Chinappa

Yeah. Hi, Surya. It’s Chini here. Yeah, yes, the profit share – the profit margins will vary based on products and will vary based on the markets.

Surya Narayan Patra

Pvt Ltd.

Okay.

M.B. Chinappa

The Q3, we did start to supply Peg and – to the U.S. markets. And this will translate to higher secondary sales in subsequent quarters. And with that, we will start to see the margin improvement [indiscernible]. So we expect enhanced performance in Q4.

Surya Narayan Patra

Pvt Ltd.

Okay. And also the element of the profit sale, possibly could benefit subsequently, is that right, sir?

M.B. Chinappa

So, generally, we were – the larger part of our profits get booked on secondary sales. And along with that, we’ll start to see the margin improvement.

Surya Narayan Patra

Pvt Ltd.

Sure. Okay. Thank you, sir. Wish you all the best.

Operator

Thank you. We’ll move on to the next question. That is from the line of Damayanti Kerai from HSBC. Please go ahead.

Damayanti Kerai

Hi. Thank you for the opportunity. Congratulations for your Trastuzumab launch. So obviously, you mentioned – we have seen good start to the products. But can you share like how we are progressing there in terms of formulary coverage or like other market, marketing initiative, given that we are expecting 2 more competitors to join in this market in first quarter of this calendar year?

Paul Thomas

Sure. I think early days – Mylan can comment further. But definitely we – while there are other competitors coming, we’re also in a very unique position, having that – being the only ones with Pegfilgrastim and Trastuzumab biosimilar working with starting point. It’s the same customer base and we will be able to expand to other segments with both products together. So at this point, there are contracts in place with key stakeholders, distributors, group purchase organizations, providers, payers. And there is broad payer coverage, the – national, regional and local level.

So we have that base in place. There is the patient support and reimbursement systems that are already in place in oncology for these products, so well placed to grow this product.

Damayanti Kerai

Oh, sure. Also, ma’am, during her opening commentary, mentioned about some deferred sales in the Biologics sales. So can you elaborate on that, please?

Paul Thomas

Sure. I think there is nothing – it’s not a single item that stands out there. But I think as we generally – there are always some moving parts, as we supply to partners in various markets. So as that grows, then the top and bottom lines will grow in the next quarter.

Kiran Mazumdar-Shaw

And you can understand that at the yearend this often happens.

Damayanti Kerai

Sure. And my last question will be, have we filed for Bevacizumab in the U.S.? I think earlier we indicated for calendar 2019 filing.

Sundar Ramanan

This is Sundar Ramanan. Our policy, our practice has been to inform you of our filing once the document or the drossier has been accepted by the agency. We will inform you in the due course once that – once it crosses that stage.

Damayanti Kerai

Oh, sure, thank you.

Operator

Thank you. We’ll move on to the next question. That is from the line of Vikram Agrawal from Valuegen Investment Managers Private Limited. Please go ahead.

Vikram Chandrashekhar Agrawal

Good morning. I have a couple of questions. The first one is that Biocon recently set up a subsidiary called Biocon Biosphere. Can you briefly explain what this company is about and how does it strategically fit with the Biocon Group?

Paul Thomas

So we have set up this subsidiary to set up our API manufacturing plant in Vizag. We have mentioned in the past that we are investing $100 million to expand our immunosuppressant capacity multifold, as we see a very strong fraction for immunosuppressants. And all our new manufacturing facilities would be under this legal entity for Small Molecules business, which will also enable us to avail the tax benefit of 15%, which the government of India had announced earlier this year that any new manufacturing entity set up after October 19, will be eligible for a reduced rate of 15%.

So to also avail that lower tax rate, all the new entity manufacturing units would be set up under this entity.

Vikram Chandrashekhar Agrawal

Okay. Second is any major milestones to look out for in the calendar year 2020?

Kiran Mazumdar-Shaw

I think there are several milestones to look forward to and I think as we hit those milestones, we always announce it and share it with all of you. But as you can understand, we have actually hit some major milestones. For instance, the Trastuzumab launch in December was a very important milestone. The approval of our expanded Pegfilgrastim facility was also a very important milestone, because that now enables us to go beyond the U.S. We had not been able to even address the European and emerging market opportunity.

But I think this now enables us to actually do all of that. And I think you are likely to see a big upside from that effort. The third thing is, as you know, we have also recently commissioned our large Biologics facility and we hope that that will be approved in the near future. That should be an important milestone, because that also sets up a very expanded capability and facility for our biosimilars.

And then, we have many other things to look forward to, the Glargine approval. We have other biosimilar insulins also, which we expect to be approved during this coming fiscal. And we expect many, many launches to take place, not just in biosimilars, but even the Small Molecules has certain milestones to look forward to. And we also expect our research services also to have many milestones in the way they are augmenting their business.

So I think there are a number of very exciting milestones ahead. And I hope that every one of this is successfully reached. And we will be very happy to share it with you as and when we reach it.

Vikram Chandrashekhar Agrawal

That’s brilliant.

Christiane Hamacher

Let me hit the bit on Glargine, because we at Biocon uniquely positions when it comes to biosimilars in insulin. We are very much looking forward to the launch of Glargine in the second half of calendar year in 2020, as already also stated by Mylan. We have a unique portfolio of biosimilars in the insulin space. And here, we only expect very, very few players and less players than in other segments. And we will be the first one in the United States to launch a biosimilar Glargine. So, say, we are extremely well positioned. We are looking forward to it. Sorry.

Vikram Chandrashekhar Agrawal

Brilliant. Thank you very much and all the very best.

Operator

Can we move on to the next question?

Vikram Chandrashekhar Agrawal

Yes, please.

Operator

Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.

Shyam Srinivasan

Hi. Thank you for taking my question and good morning. My first one is on Pegfilgrastim. In the opening remarks, I believe I heard that going forward we will look at the 340B hospitals as well as a segment. If I recollect right, I think Mylan Biocon have targeted the small clinics in the past. So just want to understand the dynamics here. This is kind of assumed to be a more competitive space. Would we look at some kind of a pricing action, given that this could be competitive?

And the last one on this particular question is on Sandoz. How have they approached after their launch?

Paul Thomas

Sure. I think on the second piece of it first, the new competitors quite recent really haven’t seen any change in the market dynamic based on that at this point, so nothing really to comment there. In terms of the additional segments we’re going into, I think we’re broadening overall, which we’re looking forward to. And certainly, government segments; 340B has a government controlled aspect to it. And it does have a different pricing dynamic. It also has different incentives for biosimilar use and it has a group purchasing set up there.

So there are various aspects that make it quite attractive. It does work in a different sort of a pricing segment than the commercial customers.

Shyam Srinivasan

Would that be lower, higher? I’m just trying to get that sense.

Paul Thomas

There are mandated government discounts for 340B. I wouldn’t get into specifics on the level of it, but there are some certain mandated discounts there.

Shyam Srinivasan

Okay. Got it. Thank you. My second question is on the Small Molecules. I think I noticed the press release talk about INR 100 crore formulation number. About 20% of it looks like Small Molecules now. Is there a commensurate improvement in margins that comes with this? Or API business is more profitable? So I’m just trying to understand from a margin dynamic how this would play out.

Paul Thomas

Well, Shyam, I can’t get into details of which business is more profitable. Obviously, the Generic Formulation, crossing INR 100 crore milestone is an important achievement for us, because as you know this business we started few years back. We started commercializing these products 2 years back. And we are obviously looking at a long-term impact. And we’re – and also an integrated play, where we are going to forward integrate some APIs to formulations.

And in long-term, we obviously expect the business to be accretive to our margins as we have specialty products and differentiated products in our portfolio.

Shyam Srinivasan

Got it. Last question is on the True North investment, $75 million, I thought, if I recollect right? Press articles suggested we need more than $75 million. So are there more rounds that we need to look at from a private equity infusion perspective going forward?

M.B. Chinappa

Hi, Shyam, Chini here. Yes, we had indicated that we are looking at some additional funding. We will update you over the next few quarters.

Shyam Srinivasan

Chini, is it like another $200 million, $300 million, because – just to get a sense of where the funding would come and what is the size of that? I think, that’s what I’m trying to look at?

M.B. Chinappa

We had indicated that we’re looking to raise $200 million to $300 million. No further updates on that at the moment.

Shyam Srinivasan

Got it. Thank you and all the best.

Operator

Thank you. The next question is from the line of Akash Agarwal from Axis Capital. Please go ahead.

Prakash Agarwal

Yeah, this is Prakash. Thanks for the opportunity. Good morning to all. First question on EBIT margins, especially Biocon Biologics. So margins have been flat despite Trastu and Peg coming in, did I hear correct from, Chini sir, about the profit is yet to pickup or the sales would come in the subsequent quarters? If you could just clarify or reconfirm that?

M.B. Chinappa

Prakash, a couple of points here. One is, as the peg is not translated to secondary sales. So that will come through in the subsequent quarters. As far as the Trastu, I think, that we have the supply launch quantities. And the benefit of that is kind of negated has worked during opening comments by the remediation of the Malaysia facility, some sales having been deferred and the increased R&D cost. So that’s why you’re not seeing the spike in margins.

R&D costs have jumped 71% quarter-on-quarter, if you can see there, it’s about – the difference is almost – we’ve added INR 54 crores in terms of R&D expenses compared to the previous quarter last year. So, I think, that should give you some optics on why you’ve seen a muted EBIT in that sense compared to last year.

Prakash Agarwal

Fair enough. Thank you for that. And secondly, on the reiteration of the guidance of $1 billion by fiscal 2022, we would probably end this year by about [a100 plus/minus] [ph].

M.B. Chinappa

Yeah.

Prakash Agarwal

So we are talking about a big step-up, if you could just give broad colors that we all know that Peg is ramping up, Trastu will ramp up, we will have Insulin Glargine. Are there bigger assets apart from these 3? And the second part is, how do you divide this into developed markets like U.S., Europe and emerging markets? Thank you.

Christiane Hamacher

So first of all, thank you for the question. We have well marked out all of these opportunities. I’d like to set the scene by saying 6 molecules from our portfolio of 28 have already been commercialized. When it comes to the $1 billion, let we structure it in 3 chunks. One is U.S., U.S. will be the biggest drivers to achieve the $1 billion. We will see – expect faster penetration for Pegfilgrastim. The effect of the Trastuzumab launch, we will definitely see glargine, we have mentioned and also Bevacizumab and Trastuzumab will also be launched in the United States.

The U.S. will be the biggest driver, followed by most of the world markets and Europe and other developed markets. What actually is very encouraging that we have seen in the United States that double-digit market share from biosimilar molecules in the U.S. are achievable.

We also expect and looking at the dynamics in the U.S. But at the end, few players is about similar space compared to generic, and much more disciplined play, when it comes to price and price erosion. And I just want to point out again that we are also an early move in the glargine space in the United States, we are also uniquely positioned. The growth in most of the world market where we are launching additional products and seeing also additional penetration will also help us to get to the $1 billion aspiration. What we currently have not factored in this guidance is any additional opportunity in China that’s all about the $1 billion guidance so far.

Prakash Agarwal

Great. And would you like to give a broad color like U.S. 70%, and Europe, EM, some broad color there?

Christiane Hamacher

We will do that later. U.S. will definitely be the dominant segment.

Prakash Agarwal

Perfect. Great. And lastly, on the margin front, again, like would you like to give some color, how would the margin look; given these are better margin businesses? How would the margin look in fiscal 2022?

M.B. Chinappa

We will guide on margins that the subsequent date. It’s too early to guide on margins now.

Prakash Agarwal

Right. Thank you. I’ll join back the queue.

Operator

Hello? Hello, Mr. Agarwal?

Prakash Agarwal

Yeah, I’m back in the queue.

Operator

Yes, sir. Are you done with the question?

Prakash Agarwal

Yes. Thank you.

Operator

Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Sameer Baisiwala

Thanks. Can you please remind us on your BLA filing timeline for Beva and aspart?

Paul Thomas

Bevacizumab, we’ve filed. We will – our policy has been to update you on our filing once it’s been accepted by the agency. So we will update you on the due course. On aspart, that’s what I mean to say. On aspart, we expect to file in calendar year 2020.

Sameer Baisiwala

Okay. And the second question is Chini for Trastu. You had 1 month of sales, and then, my guess is some sort of a channel filling. So was this a typical quarter already? Or do you think it was a – the typical quarter is to follow as we go forward?

M.B. Chinappa

Trastu really play out over a full year. It’s in the year 2, you will see the full benefit of Trastuzumab. It’s a steady build up.

Sameer Baisiwala

Okay. And one final question on the private equity raise. So first of all is $200 million to $300 million, it’s sufficient for the sort of pipeline that we are looking at? I would imagine that each product would take $200 million plus or minus? And second why are we doing it in tranches and not in one go?

Kiran Mazumdar-Shaw

So Sameer, I think, we have been talking to a few interested investors, private equity investors. And obviously, True North has been first of the block, and we expect the others to follow. So that, if there is no real sort of plan to do it in tranches. But this is really what has evolved over time in terms of the opportunity for people to invest. Secondly, this amount is adequate to see us through up to the IPO quite comfortably. So I think that’s the plan that we wanted to basically set a baseline kind of valuation. And we expect them to be approaching the IPO with certain events that would obviously position us well for the IPO.

So I think that’s really the kind of plan to then raise extra capital, because by that time, obviously, we will need to raise more capital to further invest in our R&D pipeline. I think, right now, what we really wanted the money forward to really make sure that our CapEx spend that have been very, very high in expanding our capacity as well as looking at some of the development programs that need more injections as they get into the clinic are actually supported without further date.

Sameer Baisiwala

Okay, great. Thank you so much.

Operator

Thank you. We’ll move on to the next question, that is on the line of Mr. Raj Mohan, a professional investor. Please go ahead.

Unidentified Analyst

Yeah. Good morning, and thank you for the opportunity. On Pegfilgrastim, Fulphila, you’ve talked about it a lot. According to IQVIA data, Udenyca from Coherus is shown to have over 3 times the unit market share has Fulphila in the last quarter of calendar 2019? With the new Bengaluru facility getting FDA approval, which you’ve un-muted, will aid scaling up capacity multifold. How do you think the volume market share would play out, especially with Sandoz 2 starting? Would you be sort of heading up the 2 times gap with your biosimilar compared to the Coherus, as the cost of the originator Amgen and any timelines?

Paul Thomas

Sorry. Can you repeat that just the last sentence of it?

Unidentified Analyst

Basically, as indicated, the Coherus has 3 times your market share? Would you be heading up the 2 times gap that you have with Coherus? At the cost of the originator Amgen, and we have any timeline in terms of the ramp up in market share?

Paul Thomas

Yeah. Certainly, we expect we have significant growth ahead of us based on using this new capacity, it will be in the U.S., and it will help us grow in other markets as well going forward. And as you’ve pointed out, I think, there is plenty of room for Biosimilars overall to grow here. So there is – we have momentum to build on with our existing customer base and our expansion. We have seen – I think, I mentioned earlier, we’ve seen good increases, really several percentage points in some of the data for prescription share already. And we expect that these are early numbers in weekly kinds of things. But we expect that – we definitely see the signs of strong momentum to grow in this market, and we expect that to happen.

Unidentified Analyst

There is no objective data points like currently, say, from a 6% market share and operate at 20%. You could head towards the 20% mark within this calendar? And would it be at the cost of Amgen?

Paul Thomas

Yeah. Certainly, I mean, at the cost of the originator certainly we do expect to be pulling market share from the originator. This is less than one-third of the market there, I think, I was mentioned before, about 29% overall or that in the latest data for Biosimilars. So we would definitely expect to take share from the originator. And yeah, I mean, when you do – what some of these segments can move relatively quickly, the government segments that we talked about. So, while I don’t think we would talk about a specific market share target, we definitely don’t see that gap as something that can’t be bridged.

Unidentified Analyst

That’s fair enough. Does this sort of alter your strategy of modular capacity enhancement, especially with the success of Fulphila value encountered capacity constraints down the line? Do you feel with [indiscernible] would you alter this with more aggressive on modular large capacity initiation?

Shreehas Tambe

I think that’s a very nice question. This is Shreehas Tambe here. I think the important thing to remember in the Fulphila launch is that it’s been one of the most successful launch of any biosimilar in the United States, so I think, it does come with a certain upside that the demand has taken us with the positive surprise that it has come. And I think, our approach of being cautious about how we’ve invested has stood us well over a period of time. And I think, these kind of sometimes positive surprises on capacity are helpful. And we remain optimistic as we go ahead in terms of our capacity build up is.

Looking at the investments we’ve made on Trastuzumab, you can already see, Kiran just talked about it that we are having a new drug substance facility come up and you’ve seen the additional capacities for Pegfilgrastim as well as our drug product facilities come on line. We’ve built substantial capacity for insulins as well. So I think, we are well positioned, at the same time, careful about the kind of investments that we make rather than having a huge ideal capacity on our books.

Unidentified Analyst

Yeah. That’s a very clear answer. And then coming into this market share estimates of about 29% of the Neulasta market has been taken by the Biosimilars. And one-third of the same has been broadly taken from Onpro. Are we seeing an accentuation of the loss of the Onpro market? And are we able to break into the Onpro market in a very material fashion? We expect similar patterns to emerge in Trastuzumab, when biosimilar – and the biosimilar compete with a subcutaneous version of Roche?

Shreehas Tambe

So definitely, I think, on both of those the – we expect those market shares to shift into for Biosimilars to take share from both of those. I think, we’ve talked about in the past for the Onpro product, there is a small minority of that, that is for really feeling a practical need there, and the rest is based on what’s being offered there, and so that market share can move. When talking about Europe, the subcutaneous really has not come into a lot of discussions about how biosimilar market shares are playing out. I think, we’ve heard the originator talk in the past as well that this is not expected to be a long-term barrier to Biosimilars more of a short-term hurdle. And really it’s – I think, it’s largely out of the conversation not a significant factor. So definitely expect that those are not sort of ceilings – the shares, but those are not ceilings for Biosimilars.

Unidentified Analyst

That’s clear enough. Then Mylan had indicated to a slower ramp-up of obviously compared to Fulphila their investor interaction. So in this case, you have a settlement with Roche, could you give any color as a percentage of Fulphila share gain that Roche witnessed initially. What would arguably be with – especially with more competition?

Kiran Mazumdar-Shaw

I don’t think, you can actually exactly compare these segments, because the treatments of patients follow a very different schedule. I’d like to point out that the duration of treatment for Trastuzumab is a much, much longer one compared to Pegfilgrastim, where it’s a more in acute treatment. So treatment algorithms, treatment durations are different. Therefore, a ramp-up here in the Trastuzumab biosimilar segment is expected to be more gradual and will play out over the first 1 to 2 years.

Unidentified Analyst

That’s clear enough. And my last question, as you also target substantial volume growth in more developed markets with disruptive pricing and government assistance, would the endeavor be to maintain margins with the multiple volume stores? And is it practically possible?

Shreehas Tambe

You’re talking about across in developed markets you’re saying?

Unidentified Analyst

No. What I’m saying is comparing non-developed market trust, which will have multitudinal volumes when compared to developed markets? But then at a lower price point, but then – would the volumes be compensating for the price discounts that – or the price shortfall that you have in non-developed markets? Would that be the endeavor of the company to sort of maintain margins at the gross and operating levels as the same as developed markets in non-developed markets, is it practically possible?

Kiran Mazumdar-Shaw

Our strategy right from the beginning was that our cost structure overall will allow us to play the price volume gain as well as value maximization. And we are serving patients together with our partners across the world. So you have to see the overall picture, we are – we will be able to serve markets at the different price points, to go for price volume as well as for value maximization and overall run a very profitable business.

Unidentified Analyst

Thank you. And best wishes for the future.

Paul Thomas

Thank you.

Kiran Mazumdar-Shaw

Thank you.

Operator

Thank you. We’ll move on to the next question, that is in the line of Charulata Gaidhani from Dalal & Broacha. Please go ahead.

Charulata Gaidhani

Hi, congrats on the good set of numbers. My question pertains to the R&D spend for – R&D spend and the remediation cost for Malaysia. What – how do you expect these costs to go up over the next 2 years?

M.B. Chinappa

So the remediation cost will start to taper of it will be some additional costs in this quarter, and it’s really taper of forward the next year – fiscal year. So that’s not something that will play out over 2, 3 years. R&D spend, as we have guided in the past is on an upward trajectory. We have started to see increased spend in this fiscal. As regards to future years, we will guide you in the subsequent quarters.

Kiran Mazumdar-Shaw

So you can – I just want to add to that, that Biologics itself as indicated a very large and growing pipeline. And in addition to that Small Molecules also has a growing pipeline of ANDA generics. So all this requires a lot of investment apart from that we’ve also seen increased investment in our novels. But so – therefore, you’re seeing an increase R&D spend, but the important thing to factor is that the return on this R&D spend is going to be enormous. So I think, once again, I keep sort of harping on this point that whilst from an accounting point of view, R&D is an expense, we personally believe there’s an investment for growth. And that’s how you should be viewing R&D expenditure.

Charulata Gaidhani

Okay. And…

Kiran Mazumdar-Shaw

…which, of course, we have also demonstrated in our initial launches of our Biosimilars, which in the past, if you remember was always a concern. But that R&D spend has meant a huge, huge growth for Biologics in the last 2 fiscals.

Charulata Gaidhani

Right. And my second question pertains to the sBLA for Pegfil that is for drug substance. So the drug product would also get expanded in due course?

Kiran Mazumdar-Shaw

I think the challenge we had was really drug substance, because the capacity constraints that we had actually emanated from drug substance. And from a drug product capacity point of view, that had been addressed, because we had a large capacity for drug product. But I think with the approval of the drug substance facility, this actually now caters to our needs that – the market needs that this product demands. And as I said, the drug product capacity expansion has been multifold and this now allows us to go beyond the U.S. markets to other markets like Europe and other global markets.

Charulata Gaidhani

Okay. Thank you. All the best.

Operator

Thank you. The next question is from the line of Hari Belawat from Techfin Consultants. Please go ahead.

Hari Belawat

Good morning, everybody. This is regarding this Biocon Biologics IPO, when do we plan this IPO to come? And what will be the size of the IPO?

Kiran Mazumdar-Shaw

So as you know we have taken a private equity round at this point in time, and according to the understanding we have with the private equity investors, we would like to see an IPO within 3 years. So you can understand that we are positioning ourselves to do the IPOs sooner than that date. So I think – as and when we ready to approach the capital markets for an IPO, we will certainly let you know.

Hari Belawat

Okay. Size also will be decided later? What will be the size of the IPO?

Kiran Mazumdar-Shaw

Yeah. We will definitely share all this information with you closer to the date.

Hari Belawat

Okay. One more clarification. There are 2 companies, Biocon Biologics Limited and Biocon Biologics India Limited. As per my understanding this is Biocon Biologics Limited IPO will come?

M.B. Chinappa

Yeah, that Biocon Biologics Limited is the UK entity, and Biocon Biologics India Limited is the parent company offered a biologics business, which is based in India. At the moment, we’re really looking at listing of Biocon Biologics India Limited.

Hari Belawat

Okay. So all the funds, which we are raising through private placement and all this is in Biocon Biologics India Limited?

M.B. Chinappa

That’s right. Yes.

Hari Belawat

Okay, sir. Thank you for the clarification. Thanks a lot.

Operator

Thank you. The next question is from the line of [Pratik Shah from Apex Capital] [ph]. Please go ahead.

Unidentified Analyst

Hello. Hi, good morning. My question is, we spoke about the research and development costs of INR 155 crores this year. Can we just know that how where are these research and development costs attributed to for this quarter?

Kiran Mazumdar-Shaw

I think, I just mentioned that these costs are attributed largely to some of the biosimilar program, some of the ANDAs that we are developing and some novel program.

Unidentified Analyst

Okay. Okay. Thank you so much and good luck for the future.

Operator

Thank you. The next question is from the line of Cyndrella Carvalho from Centrum. Please go ahead.

Cyndrella Carvalho

Hi, thanks for taking my question. Just wanted to understand on the Small Molecules margin, we are seeing some sequential debt on the segmental PBIT margin. Is there any one-off over there? Or how should we look at it?

Paul Thomas

Cyndrella, it’s due to increase in R&D expenses. So operating margins have remained constant, but the R&D expenses, which has gone up on an overall basis, obviously, has impacted Small Molecules margin as well.

Cyndrella Carvalho

Okay. And in terms of Bevacizumab commercialization, we’re looking at it in FY 2022 will be right? Is that the correct one?

Kiran Mazumdar-Shaw

Yes. So I think, it will happen before FY 2022. So that’s what the hope is.

Cyndrella Carvalho

Okay. So we’re looking forward for approval somewhere by end of, see, FY 2021, somewhere there?

Kiran Mazumdar-Shaw

Yeah. That’s the hope.

Cyndrella Carvalho

Okay. Okay. Thank you so much.

Operator

Thank you. The next question is from the line of Harith Ahamed from Spark Capital. Please go ahead.

Harith Ahamed

Right. Good morning, everyone. On this new antibody facility in Bengaluru, can you give a sense on the timelines for when the operating cost from the facility will come in to the P&L? And when you’ll start depreciating this facility? And if you can also quantify these approximately will be kick in from FY 2021 or will this be pushed to FY 2022?

M.B. Chinappa

The cost will start to hit the books from FY 2022 onwards. And, of course, it will also come to the increased supplies. So we don’t see that as margin, that within the margin.

Harith Ahamed

And then, any roughly quantity for the – can you quantify roughly how much pre-operating expenses are kind of being capitalizing potentiality on come into the P&L to deliver to that extent?

M.B. Chinappa

Yeah. Pre-operating expenses haven’t yet started to it. So we are – I mean, the capacity tests being completed this quarter. And then next year, we would have to pre-operating expenses executive, which would all be capitalized, because it’s still in the validation stage. Once the plant is ready for commercial use, we’ll start expensing it and that would be FY 2022. And as I indicated, [which will also be increased supply from the specificity] [ph], so we don’t see this as impacting margins.

Harith Ahamed

Okay. Got it. And on the Bevacizumab and Aspart, I think you mentioned the guidelines for your U.S. filings. Can you provide the guidelines for Europe?

Paul Thomas

We will inform you once the agency accepts our packages. That’s been our practice and that’s what we will do for both. As far as for Bevacizumab, as far as Aspart is concerned, we have filed already and we are – the file is currently under review and accepted for review.

Harith Ahamed

Okay, right. And then, last one on the Small Molecules segment. You mentioned that you crossed over INR 100 crores of revenues from the segment, from the generic business. Can you give some color on the R&D spend there? How much of our R&D is going into that segment? I mean, you have a number of ANDA filings you’re targeting each year and some color on the areas of filings, if you can?

Paul Thomas

So we’ve, I think indicated that our overall R&D expenses will be in the range of 12% to 15% of our top line excluding Syngene. Obviously, the percentage will be higher for biosimilar it’s more expensive to develop biosimilars compared to the generic drugs. So without splitting up the spends for Small Molecules business, obviously, the percentages are much lower compared to biosimilars and novel biologics.

As far as the filing, number of filings are concerned, we cannot guide on the number of – see, we will be looking at a specialty play, so we’re not going to look at a me-too kind of business, where we will focus on a forward integration, looking at all our specialized APIs and specialized formulations. So I think in the past also, we had mentioned that we would look at single-digit filing. And obviously, we are building a portfolio of – you would have seen recently the approvals we have got. We have also received a tentative approval for another molecule recently.

So again, a lot of these drugs are playing into our focused therapeutic areas of oncology of diabetes and cardiology with our statins portfolio, immunosuppressants and immunology.

Harith Ahamed

Okay. Thanks a lot. That’s all from my side.

Operator

Thank you. The next question is from the line of Nitin Agarwal from IDFC Securities. Please go ahead.

Nitin Agarwal

Hi, thank you for taking my questions. First, on the Small Molecules, what are number of active products that we have in the market right now?

Paul Thomas

Well, in the U.S., we have 3 commercialized products, and we have other products where we have the approvals, but we cannot launch because of the IPO situation. And we do expect to launch additional products in the coming…

Nitin Agarwal

And secondly…

Operator

Sorry to interrupt, Mr. Agarwal. Sir, there is a lot of disturbance from your line.

Nitin Agarwal

Hello, is it better?

Operator

Yes, it is. Thank you.

Nitin Agarwal

Secondly, so that on the – since you’ve discussed a lot about the EBIT margin for different segments now, there is a largest component of unallocated expenses which are there, if the segments break, a profitable breakup. Would you help us understand what is this INR 50 crores amount for quarter, what really amount to, I mean, that’s a fairly reasonable amount of cost on an annualized basis?

Paul Thomas

Right, so these are – I mean, before the whole reorganization, as you know, Biocon was split into various verticals, which are Small Molecules, Biologics and Branded Formulations. And all those, the common costs were unallocated. We will, now with the whole restructuring, getting to an end by this fiscal year.

Next year, we would be able to identify most of these expenses either to the Small Molecules business or to the Biologics business. And the corporate cost would then be a very small number, which would purely be relating to the corporate costs relating to the Board and the common team which will be there. So we will see a much low number starting next year.

Nitin Agarwal

Okay, fine. That helps. And lastly, on the formulation businesses, across India and Middle East, how should we look at the business over the next couple of years?

Paul Thomas

Well, I’ll comment on Middle East first and I’ll hand over to my colleague to comment on India business. But Middle East has been a challenging market for us. We have seen lot of headwinds, because of the new regulations we are in. Lot of companies were forced to take a price reduction. So our entire portfolio of generics have seen significant price reduction.

So Middle East what used to be a very lucrative market, is looking challenging. We are in the process of discussing with your joint venture partner, Neopharma on our way forward. And I think over the next one or two quarters, we’ll have a better sense in terms of where this business is headed. Next I’ll hand over to my colleague [Fin] [ph] who will comment on value formulation, India business.

Unidentified Company Representative

Hi, can you hear me okay?

Nitin Agarwal

Yes, please.

Unidentified Company Representative

Hi, this is [Fin Doll] [ph], and thank you for your question. So India is very important to us. India is our home country, and we continue to be inspired and committed to providing high-quality medicines and biosimilars to Indian patients. And, yes, we are aware of the issues that we have been having within India, and we’re working through them.

And, for example, some of the very specific issues in India are around very significant pricing pressure, increasing competition, and the opportunity to address how we can look at efficiencies and productivity, and how we develop our medicines and run our business. To that end, we’re exploring new and disruptive business models that will enable us to both drive efficiencies, but also to reach more patients more efficiently. And we will come back to you with a plan in early next year.

Nitin Agarwal

Okay. And if I can squeeze in a last one, on the – for diabetes, insulin supplies to WHO and other multilateral agency we talk about, the low cost diabetes, how important is that segment from a revenue projection and from a – potentially profitability contribution to the Biologics business?

Alexander Zach

So, this is Alexander Zach. I’m heading Access in Biocon Biologics. So let me first point out that, I mean, you were referring probably also to the $0.10 initiative, and what are we going to do with low and middle income countries. And that we will want to provide affordable access to insulin to these countries, which is addressing actually a public health issue.

This is – we are currently already engaging with countries on that. And there is, we are also looking at it, of course, from a – so this is on one hand about access. But we’re also cognizant about the profitability, which is also, given if we can play with these countries, let’s say the volume gain, as we are perfectly also positioned to play that volume gain.

Nitin Agarwal

Well, thank you and best of luck.

Alexander Zach

Thank you.

Operator

Thank you. The next question is from the line of Akash Agarwal from Axis Capital. Please go ahead.

Prakash Agarwal

Yeah, thanks again. This is Prakash. One question on the China access. I think in the opening remarks, in the emerging market segment you spoke about that. So what are the initiatives we are taking or where is the development happening especially on the backdrop of Mylan/Upjohn merger also?

Christiane Hamacher

Mylan and Action together very well positioned for the China market. If you are aware UpJohn has its headquarter in Shanghai. That means the knowledge about the markets, the market segment, how to enter these – this market, was actually a province by province market. All this is there. We will inform about the specific strategies about the molecules in the future. It is the second biggest market and was very encouraging that last year for the first time the biosimilars were listed on the National Drug Reimbursement List, which actually ensures nationwide reimbursement for the biosimilar with an extremely high reimbursement coverage for all patients.

So China is certainly one of the next big opportunities when it comes to most of the world markets. And we are very well positioned because of Mylan and Upjohn and the strength in this market, in particular UpJohn.

Prakash Agarwal

Okay. And secondly on the CapEx, if you could just help us understand this year’s CapEx and next year CapEx for Biocon Biologics and the group as a whole.

Siddharth Mittal

So, Prakash, I think at the group level we have added 9 months CapEx of INR 1,500 crores. And we expect a similar kind of run rate to continue with this in the fourth quarter and also in the next year. So we are building capacities across all our three businesses.

Prakash Agarwal

So one was the API plant that you’re building.

Siddharth Mittal

[Yeah, that’s right, so we have plant in…] [ph]

Prakash Agarwal

Yeah, yeah.

Siddharth Mittal

Yeah. And we have additional capacities also being built for our biosimilars business, so additional anti-bodies capacities is being built.

Prakash Agarwal

Okay. And this does not include the Malaysia phase 2.

Siddharth Mittal

No.

Prakash Agarwal

Okay. So, INR 2,000 crore this year and INR 2,000 crore next year?

Siddharth Mittal

Yes.

Prakash Agarwal

Okay, great. Thank you and all the best.

Operator

Thank you. Ladies and gentlemen, that’s the last question. I now hand the conference over to Mr. Saurabh Paliwal for his closing comments.

Saurabh Paliwal

Thank you, Lezanne. Ladies and gentlemen, this concludes the conference call. If you have any further questions, please do reach out to me. Have a wonderful day.

Operator

Thank you. Ladies and gentlemen, on behalf of Biocon Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.

Recommended For You

Comments

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.