Informist, Wednesday, Nov. 13, 2024

By Apoorva Choubey and Anjana Therese Antony

MUMBAI – Biocon Ltd. is poised to see an accelerated growth momentum in the coming quarters as its biosimilars and generics businesses are geared up for high-value drug launches in fast-growing therapy areas, at a time when global levers for the research services division are aligning in its favour, according to its Group Chief Executive Officer Peter Bains. This growth, expected to be driven by new launches, could also mean expansion in profitability of the company.

"Demand is strong in all three verticals," Bains told Informist in an interview. All the three businesses are climbing the value-chain with enhanced capabilities and a niche pipeline of new offerings, he said. Subject to the new launches being successful, Bains expects the top-line growth to reflect in operating margins over the coming quarters.

The largest unit of biosimilars, housed under Biocon Biologics Ltd., is well-positioned to seize the opportunity arising out of patent expiries expected over the next few years. "Around 50-odd bio-originator products are set to come off exclusivity in the next decade or so, representing tens of billions of dollars in original sales," Bains said.

Biosimilars, as a class of drugs, have seen huge investments over the last few years and are gaining traction around the world due to their ability to drive costs lower for more affordable healthcare, Bains said. Biologics have an advantage of being specifically targeted in terms of mechanistic intervention in treatments like oncology or immunology, Bains added.

"Without doubt, they have changed the nature of standard of care and expected outcomes across a wide range of cancers, and a wide range of immunological diseases, and that's why they've become such large drugs in their own right," he said. Therefore, biosimilars players like Biocon stand to benefit once biologics lose exclusivity, and bring down the cost of healthcare for patients, he said.

The company intends to launch five new biosimilars in the US in the next year or so, and three-four new ones in other regions as well. In biosimilars and generics, the drugmaker's focus will remain in the therapy areas it is present in or has committed to, according to Bains. These are oncology, immunology and diabetes for the biosimilars vertical and GLP peptides, select injectables, high potency oncologicals, and immunosuppressants in generics, he added.

Syngene International Ltd., which houses Biocon's division of contract research and contract development and manufacturing services, is seeing healthy demand. For the research vertical of Syngene, there is an additional tailwind of clients opting for the China Plus One strategy, Bains said. Syngene has guided for revenue growth of high single digit to low double digits for 2024-25 (Apr-Mar), on hope of some recovery in demand from the US biotech industry in the second half of the year and pilot projects from global players looking to reduce dependence on China.

For Jul-Sept, Biocon reported a consolidated net loss, attributable to owners, of INR 160 million, against a net profit of INR 1.26 billion a year ago. The net loss for the quarter was on account of higher tax, based on geographical split of profits and minority interest.

The effective tax rate is expected to normalise, going forward, Bains said. The company's revenue for the quarter increased 3.7% on year to INR 35.90 billion. For Apr-Sept, Biocon reported a 2% rise in net sales to INR 70.2 billion while consolidated net profit surged nearly 184% on year to INR 6.4 billion.

GENERICS

High-value new launches planned across key markets give Biocon the confidence of a recovery in the growth of the generic business in Oct-Mar, according to Bains. During Apr-Sept, the company's generics business bore the brunt of challenges such as pricing pressure, muted demand, and a planned facility shutdown.

"As we move to the second half...we do see a transition to accelerated growth across our businesses. That's exemplified in the generics business," Bains said. The growth revival is likely to be driven by the launch of Liraglutide in the UK, which will mark the first entry of Biocon generics into the GLP peptides, a market which presents a huge opportunity over the next 5-10 years, he said.

There are other formulations and API, or active pharmaceutical ingredient, launches planned for Jan-Mar, which are also seen accelerating momentum towards the end of the year in the generics business, Bains noted.

Biocon is confident of a recovery in the generics segment's growth despite pricing pressures. "I don't think pricing pressures will necessarily be as acute as we saw them in the first half but it is what you have to live with in the generics market," Bains said.

Within generics, peptides remains a centre of strategic focus, with Liraglutide being the first of a series of GLP peptides that Biocon intends to bring to the market. The generics segment accounts for close to 17% of the company's overall sales.

On the potential of peptides, Bains agreed with the consensus view that it could be a game-changer. Within peptides, GLPs are going to become a very big class of drugs and may be, as a class, compete at the very highest level, Bains said. There are even expectations that GLPs will reach more than $200 billion in market value in the next 10 years and that would be a significant expansion, he added.

NEW BIOSIMILARS

The company has a niche pipeline of new biosimilars for the next few quarters, with the two principal launches that are expected in the US being insulin Aspart and Bevacizumab. Subject to clearances, Biocon Biologics is looking at five new products in the US and three globally, Bains said. Globally, Ustekinumab, Aflibercept, and Denosumab would be the other three launches that Biocon is looking to bring to market in the near term.

On Monday, Biocon Biologics' facility at Biocon Park in Bengaluru was classified as 'voluntary action indicated' by the US Food and Drug Administration. This clearance could potentially pave the way for the launch of Bevacizyumab, which has been filed from this facility. The launch of insulin Aspart is linked to clearance of the Malaysia facility of Biocon.

Given the company's track record in biosimilars in areas of cancer and immunology, the company will keep focus on these categories. Biocon has seen significant market share gains in the US in two oncology products, which are over 20% now, and in insulin too, where market share is in near high teens.

The drugmaker expects strong growth in the biosimilars business, with new product launches and market share gains in advanced markets driving gains. Biocon Biologics accounts for nearly 59% of the company’s total revenue.

DEBT, CAPEX

Debt reduction remains a big priority for Biocon, as well as Biocon Biologics. "We've said that we will look to reduce debt further before the end of the year," Bains said without giving details on the possible options the company could pursue.

Biocon's group debt at the end of the September quarter was $1.4 billion, while Biocon Biologics's debt was near $1.2 billion. "You've seen us take significant action already in the last year... We've got BBL's (Biocon Biologics Ltd) debt down by $250 million," said Bains.

Biocon Biologics has restructured the debt through the issuance of a dollar-denominated bond, which is favourable for the company, Bains added. The long tenure will help move the debt maturities on the pre-existing loans to around 2030, thus providing Biocon more financial flexibility to utilise cash flows to invest and grow the business, he said.

Biocon Biologics had refinanced around $1.1 billion of debt last month through five-year US dollar bonds and a new syndicated facility. Much of its debt is related to the acquisition of Viatris Inc's biosimilar business for $3.33 billion in November 2023.

Asked if listing the biologics unit is an option, Bains said that an initial public offering of Biocon Biologics remains a significant opportunity. However, the circumstances have to be favourable for that to happen, he said. "The business has to be right... You have to be on the right kind of growth trajectory and the market has to be right too," Bains said.

Biocon will also lower overall capital expenditure in the next fiscal year, as it has invested heavily in advancing capabilities across biologics, generics and research segments over the past few years and several of those projects are being commissioned now. "I don't think we're going to see capex increase... I think, in fact, over the next year or so we will start to see it taper down," Bains said.

The capital spending for 2025-26 is expected to be marginally lower than the current financial year and then would taper down more significantly, he added. Biocon had earlier guided for about $75 million to $100 million of capital expenditure in both biologics and generics businesses in 2024-25. In Malaysia, the company is aiming to double the capacity of production of its insulin biosimilar, in the backdrop of the country witnessing severe shortage in supply of human insulin, used for diabetes treatment.

"In generics, we've invested significantly to create mid to long term capacity to underpin our ambitions in GLP peptides," he said. GLP-1 medications, also known as glucagon-like peptide-1 receptor agonists, are a class of drugs used to treat type 2 diabetes and obesity.

Bains did not provide definitive guidance on research and development spending but said that such investments depend on the pipeline of drugs and which stage of clinical development they are in. Biocon will continue to make investments necessary to ensure that it has a highly competitive monoclonal antibody biosimilar pipeline for the biosimilars business, he said.

For Biocon Biologics, R&D spending is expected to stay between 7% and 10% of sales. For Jul-Sept, the R&D investment of Biocon Biologics was INR 1.4 billion, or 6% of sales. In the generics business, the company has made strategic investments for peptides and GLPs, while also focussing on some injectables and high potency oncology products on a select basis.

EVOLVING TRENDS

With new policy changes such as introduction of the Biosecure Act and the Inflation Reduction Act in the US, the global pharmaceutical landscape is set to evolve significantly over the coming few years. Bains expects a shift in focus of the biotech industry towards looking for alternatives to China. India is very well-placed for grabbing market share during this shift, he said.

In September, the US House of Representatives passed the Biosecure Act, which aimed to prohibit federal agencies from procuring, purchasing, or obtaining biotechnology equipment or services from a biotechnology company that is controlled or operated on behalf of a foreign adversary, most notably China. The bill has now moved to the Senate, and if approved, it will become a law once the president signs it.

This development would effectively force big pharmaceutical giants in the world's largest drug market to diversify their supply chains and reduce dependence on China, though over a period of a few years. The bill is expected to gravely influence the ability of US companies to outsource business to players located in China, Russia, Iran, and North Korea.

"The big picture there is we've got to evolve and we're evolving the supply chains that exclude China for customers and clients that would want that," he said. Syngene is already seeing the benefit of this strategy. While China remains an important part of the global pharmaceutical supply chain, there is a need for drugmakers to adapt and evolve in light of the changing nature of policy and regulations that may unfold today and may unfold later in the future, Bains said.

Biocon is working to reduce the reliance of its own supply chain on China. The reliance on China is coming down across all businesses, Bains said, without giving details on how much is the reliance across the group. End

US$1 = INR 84.39

Edited by Akul Nishant Akhoury

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