Q1 2027 Biocon Ltd Earnings Call
Speaker #1: Let me introduce the management team on this call. We are joined by Biocon Chairperson, Dr. Kiran Mazumdar-Shaw, and Mr. Srihars Tambe, CEO and Managing Director.
Speaker #1: Mr. Kedar Upadhyay, CFO, along with other senior members of our management team, is present. We will begin with opening remarks from Kiran, following which we will open the call for questions.
Speaker #1: Please note that this call is being recorded. The recording will be made available on our website within a day, and the call transcript will be shared shortly thereafter.
Speaker #1: Before we begin, I want to remind everyone about the Safe Harbor related to today's call. Comments made during the call may be forward-looking in nature and must be viewed in relation to the risks that our business faces.
Speaker #1: That could cause our future results, performance, or achievements to differ significantly from what is expressed or implied by such forward-looking statements. Now, I would like to hand over the call to Kiran for our opening remarks.
Speaker #1: Over to you, Kiran.
Speaker #2: Thank you, Prashant, and a very good morning to everyone. I want to start on a confident note by saying that Biocon is now operating from a position of significant strategic and financial strength.
Speaker #2: The successful integration of our biosimilars and generics business has strengthened our operating model, expanded our global reach, and enhanced our ability to serve patients, customers, and partners across markets.
Speaker #2: With the major integration and investment phase largely behind us, we are increasingly focused on translating our capabilities into accelerated growth. In addition, we are focusing on improved profitability, stronger cash generation, and, of course, better returns on capital.
Speaker #2: Against this backdrop, let me begin with the perspective on the key geographies in which we operate and the opportunities we see across our businesses.
Speaker #2: North America is our largest and most strategically important market, and continues to offer significant long-term opportunities across both biosimilars and generics. The policy dialogue is increasingly centered around affordability, patient access, and healthcare sustainability.
Speaker #2: Creating a favorable backdrop for high-quality, cost-effective therapies. We are particularly encouraged by recent legislative and regulatory initiatives aimed at simplifying biosimilar development and removing unnecessary barriers to adoption.
Speaker #2: As an active participant in these discussions through industry forums and advocacy efforts, we believe that these developments have the potential to further strengthen the long-term outlook for biosimilars in the U.S.
Speaker #2: We continue to strengthen our position in the region through the successful commercialization of BOSULIF and OKELSO, which is our biosimilar denosumab; YESAFILI, which is our biosimilar aflibercept; and generic liraglutide in the U.S.
Speaker #2: These launches expand our presence across important and growing therapeutic segments, while further enhancing the breadth of our portfolio. At the same time, we continue to strengthen our regional supply network through a combination of our global manufacturing footprint, local manufacturing capabilities, and strategic partnerships, enabling greater proximity to customers and enhancing supply resilience.
Speaker #2: Together with a favorable policy environment for biosimilars, these developments reinforce our confidence in the long-term opportunities across the North American market. When it comes to Europe, this represents one of the world's most established markets for biosimilars and generic medicines.
Speaker #2: As healthcare systems increasingly rely on affordable therapies to improve patient access and support long-term sustainability, following the integration of our product businesses, we now offer a combined portfolio of 11 biosimilars and 8 generic medicines.
Speaker #2: These span key therapeutic areas, supported by tailored commercial strategies across both retail and tender channels. During the quarter, we launched our denosumab biosimilar for bone health across multiple European markets and, above me, our bevacizumab biosimilar in the Czech Republic and Switzerland.
Speaker #2: We also expanded our commercial footprint through strategic partnerships in markets such as France, Portugal, Slovenia, and Spain, further strengthening market access and positioning the business for future growth.
Speaker #2: Now, coming to emerging markets. Emerging markets continue to represent an important growth opportunity for Biocon, driven by increasing healthcare access, rising adoption of biologics, and the growing need for affordable therapies.
Speaker #2: Following the integration of our businesses, we now offer a broader portfolio, supported by expanded commercial capabilities and regional partnerships. We are also strengthening regional supply networks through a combination of local partnerships, contract manufacturing arrangements, and technology transfer initiatives, helping bring products closer to the end market while expanding patient access to high-quality medicines.
Speaker #2: During the quarter, we continued to build momentum through new product launches, regulatory approvals, and key tender wins across Asia-Pacific, as well as Africa and Latin America.
Speaker #2: Highlights included the launch of YESAFILI, the first approved biosimilar aflibercept in Malaysia; continued leadership of our bevacizumab franchise in Brazil; and further expansion of market access through multiple product approvals and commercial partnerships across the regions.
Speaker #2: Now, coming to financial highlights—so, against what I have just spoken about, let me now discuss the group's financial performance for the quarter. In Q1 FY27, the group delivered 10% year-on-year growth in operating revenue.
Speaker #2: Within this, biopharmaceuticals grew 17% year-on-year, with strong traction across biosimilars and generics. Service revenues declined 16% year-on-year due to the continued impact of challenges faced the previous year.
Speaker #2: EBITDA was at ₹902 crore, with a margin of 21%. Generics profitability improved meaningfully and helped to offset the impact of challenges faced by the Services business.
Speaker #2: Interest cost declined 23% year-on-year and 8% quarter-on-quarter, to ₹213 crore, following the actions taken to strengthen our balance sheet. Reported net profit for the quarter before exceptionals was ₹145 crore, representing a 245% year-on-year increase. As indicated in the past, our objective is not simply to grow revenues.
Speaker #2: But to translate growth into stronger earnings and shareholder value, we remain committed to improving free cash flow generation, further reducing leverage, and driving sustained improvement in return ratios.
Speaker #2: I would now like to discuss our business performance in a segmental manner. Let me start with our biosimilars business, which remains our core growth engine.
Speaker #2: ...and is well-positioned and highly differentiated for the next phase of growth, supported by recent launches and expanded manufacturing capability. Biosimilars revenue for Q1 stood at ₹2,855 crore, representing a 16% year-on-year increase, driven by the North America market.
Speaker #2: EBITDA for the quarter stood at ₹728 crore, representing a growth of 10% year-on-year, and this translates into an EBITDA margin of 25%. R&D investment for the quarter stood at 7% of revenues.
Speaker #2: Q1 performance was broadly in line with our expectations, and we expect momentum to build progressively through the year, with meaningful acceleration in the second half of FY27.
Speaker #2: We achieved significant manufacturing milestones, with EMA approval for the second drug product line at our Malaysia insulin facility. Supplies from this line have started and should pick up further from Q2 FY27.
Speaker #2: And this will support the next phase of growth in our global insulin franchise, where we find rising demand across the world. Coming to generics, the generics business delivered a strong quarter, combining healthy revenue growth with a marked improvement in profitability, reflecting the benefits of recent product launches, operating leverage, and disciplined execution.
Speaker #2: Revenues stood at ₹760 crore, representing a 21% year-on-year growth. EBITDA for the quarter stood at ₹56 crore, with an EBITDA margin of 7%, an improvement of more than 250 basis points over FY26, driven by higher volumes and operating leverage.
Speaker #2: The GLP-1 portfolio continues to be an important growth driver for the business, with generic liraglutide contributing to growth across multiple markets, including the US.
Speaker #2: The significant investments made over the last several years in peptides, fermentation, and manufacturing capabilities have created a strong platform for future growth. As utilization levels improve and newer products continue to scale up, we remain focused on further strengthening profitability, generating stronger cash flows, and enhancing returns on capital.
Speaker #2: Now, moving to our services business, Syngene's Q1 FY27 performance was impacted by lower offtake from a key biologics client and a forex hedge loss, partly offset by cost optimization initiatives.
Speaker #2: Revenues were down 16% year-on-year to ₹736 crore, and operating margin, EBITDA margin, was at 12% for the quarter. During the quarter, Syngene entered into a strategic collaboration with BRIC THSTI, a premier institute under the Department of Biotechnology, Government of India, to strengthen capabilities across translational research, clinical development, and bioanalytical sciences.
Speaker #2: We believe that this partnership further enhances its ability to support first-in-human, Phase 1, and patient-based clinical research programs. Syngene also continued to strengthen SynAI, its AI-enabled drug discovery platform, expanding virtual screening capabilities and advancing AI-driven molecule design to accelerate drug discovery and development.
Speaker #2: Its strong balance sheet continues to support targeted investments in infrastructure, AI, digital technologies, and emerging modalities. FY27, we have clearly indicated, is a transition year for Syngene as it navigates the impact of reduced demand from the large biologics client.
Speaker #2: While revenues are expected to decline in the first half, performance should improve in the second half, resulting in a single-digit revenue degrowth in reported terms for the full year, and EBITDA margins back to the mid-20s.
Speaker #2: With the new management team now in place, the focus is on restoring commercial momentum, strengthening execution, driving operational excellence, and improving profitability. These actions are expected to position Syngene for a return to profitable and sustainable growth from FY28.
Speaker #2: So, to conclude, I would like to say that we have started FY27 on a steady footing and remain confident in the outlook for the year.
Speaker #2: With a stronger foundation, multiple recent launches, expanded manufacturing capacity, and a continued focus on profitability, cash generation, and returns, we believe we are well positioned to deliver stronger performance as the year progresses.
Speaker #2: With that, I now open it up for your questions. Thank you.
Speaker #1: Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may click on the raise hand icon to do so.
Speaker #1: Please note that participants are requested to announce their company name before proceeding with their questions. Ladies and gentlemen, we'll wait for a moment while the question queue assembles.
Speaker #1: The first question is from Siddhartha Gandhi. Kindly announce your company name and proceed with your question.
Speaker #3: Hi, this is Siddharth from CWC. Thank you for the opportunity to ask questions. I have a few questions—first on the generics business and then on the biosimilars.
Speaker #3: The generics business has seen some strong growth, as you mentioned, with the Liraglutide launch. But could you give us some color on what the growth in the base business, excluding Liraglutide, is?
Speaker #3: And within that, if one looks at the generics profitability ex of R&D, it is lower on a quarter-on-quarter basis. There is a 600 basis points lower R&D spend, but a 200 basis points sort of improvement in profitability.
Speaker #3: So, is that some competitive intensity playing out in your base business? How should one look at that? These were on the Generics business and on the Biosimilars business.
Speaker #3: If you could share any updates on your formulary listings for the insulin in the US, and given that that wasn't the case, what are the products that are driving your North America growth, as you've mentioned?
Speaker #3: And if you could give us some color on the market share across products, and what’s the change in the market share?
Speaker #2: I will ask my colleagues, Shreyas and Kedar, to respond to your query.
Speaker #4: Yeah, thanks, Siddharth, for the question. I think the important part is to respond to your question. If I missed something, then please do remind me about those.
Speaker #4: The generics business has been exceptionally important for us to get back to profitability. So, what's really underpinned that turnaround right now is really a product mix that we have focused on.
Speaker #4: We focused on getting cost out of the system—that's helped as well. And operating leverage has started to play. We've talked about in previous earnings calls that you will see, once we integrate the businesses, that the operating synergies will start reflecting in the business.
Speaker #4: And that's what we're starting to see. We had said we won't quantify it until we have better visibility into it. As we get to the second half, we'll start quantifying it and letting you know.
Speaker #4: But we're starting to see that in the numbers already. The part related to R&D is also another significant piece, which is contributed to R&D through the EBITDA that you see.
Speaker #4: That's another clear incentive to see that the R&D outlays, in line with what the business is right now, are slated to grow, so that it's not in line with—it's more than what we want to right now outlay in that business.
Speaker #4: So that's on the generic side. On the biosimilar side, there have been a couple of growth drivers that Kiran listed in our opening speech, which was about our denosumab biosimilars, which we talked about.
Speaker #4: And most importantly, earlier this month, we announced that Aflibercept is a product we are launching in the ophthalmology space. It's launched now and available to patients in the United States.
Speaker #4: That gives us a very unique play before a large part of the other competition comes in. It's a big asset, and we're very bullish about how that is going to grow.
Speaker #4: You also did ask about the insulin play, and I would point you to the fact that our insulin glargine market shares have been steadily growing.
Speaker #4: Over the last couple of quarters, we've always signaled that we've been very responsible in how we've brought in other insulin products into the U.S.
Speaker #4: Our market share has grown for glargine over the last quarter as well. And we've got active conversations going, which we will make public, about our insulin aspart, which is branded Kirsty.
Speaker #4: As we move from the closed-door network that we currently supply to in the US, to the more commercial payers, I think I probably tried to cover all the questions you had asked, but in case I've missed any, do let me know.
Speaker #3: Shreyas, thank you. And maybe Kedar can help us understand the growth in the base business on generics versus the growth that's coming from the new product launches that you've done—Liraglutide and a couple of others.
Speaker #3: But just also to understand, you mentioned about, I understand—obviously, a need-based spend, and that's clear. But just to get some color, because if I look at quarter-on-quarter, the revenues are more or less similar, but you've seen a change in the margin, right?
Speaker #3: You've spent less on R&D by roughly about 6% in that business, but you've seen only a 2% improvement in EBITDA. Therefore, is that more due to competitive intensity, or is the EBITDA margin lower due to any other factor?
Speaker #4: Yeah, maybe I can add here, Siddharth. Actually, there is nothing particularly different to call out from a competitive intensity standpoint in generics. As you know, the growth will always be dependent upon new launches.
Speaker #4: This quarter, actually, the contribution from Liraglutide is in single digits, so it's picking up and not fully reflected in this quarter. And I think you should note the work that we have done on opex.
Speaker #4: Across all three companies, from Q4 to Q1, and even year on year, you will see a significant drop in the operating expenses.
Speaker #4: So, as part of integration, we have taken a hard look at all costs, and there is an effort to be more productive and more efficient.
Speaker #4: Which will allow us to retain the EBITDA. So, I think it is difficult to give you precise movement about new launches, existing business, or R&D, etc.
Speaker #4: Because there'll be quarter-to-quarter fluctuations. But if you take two messages, the new launches are expected to scale up, even in generics, in the subsequent quarters.
Speaker #4: And the work on opex and the focus on productivity remain very strong.
Speaker #3: Sure. So, single-digit growth in the base business plus new launches is how I'm reading it. And then no increase in competitive intensity. Very clear.
Speaker #3: Thank you, Kedar. Thank you, Shreyas.
Speaker #4: Thank you, Siddharth.
Speaker #1: Thank you very much. Next question is from the line of Neha Manpuriya. Kindly announce your company name and proceed with your question.
Speaker #2: Yeah, thanks for taking my question. This is Neha from Bank of America. My first question, Kiran ma'am, in your opening remarks—you had mentioned, I think you mentioned this last quarter as well—that with the improving momentum in the biosimilar business, our focus is on profitable growth.
Speaker #2: So, if I were to read that a little more specifically, should I assume margins for the biosimilar business to improve versus last year? Would that be reflected with this focus on growth?
Speaker #2: And how should we think about exit revenue, or when you say meaningful improvement in the second half, could you give us some color on what that meaningful improvement would be?
Speaker #4: Yeah, so I'll start with my comments and then ask Shreyas to add to them. But basically, when we talk about focusing on profitable growth, I think we would like to veer away from just focusing on market share.
Speaker #4: Because I think a lot of the focus from the investor community is on market share. And if you're going to only double down on market share, there is a danger that it might lead to erosion of margins and profitability.
Speaker #4: And we would, therefore, like to really, really calibrate our business in a way that we maximize the profitable growth and profitable businesses that we are seeing across our biosimilars.
Speaker #4: And maybe, Shreyas, you'd like to add to it.
Speaker #2: Yeah, thanks, Kiran. I think that's slightly said in terms of how we are aiming. Neha, going forward, I think the expectation is that, as new products come in, those products will obviously be at a higher profitability margin.
Speaker #2: So clearly, that expectation is accurate, and we should expect it will also help us offset the market dynamics, because price erosion is also another thing which is a real situation in the market, which will also happen. Comparative forces will also happen.
Speaker #2: And I think the competitiveness of Biocon is that we are able to bring in several products in a fully integrated manner, which is why, one, the EBITDA margins are robust, and they continue to grow strong as we bring in more products.
Speaker #2: So that expectation is not unjustified. So just to be clear, the 27% margin that we had for the biosimilar business last year should be higher this year, as we focus on profitable growth.
Speaker #2: Would that be a fair assumption?
Speaker #4: We've always directed this to saying we'll be in the mid-20s, and it will ramp up. Kedar, do you want to comment on that? I don't think we've guided anything beyond that, Neha, at this point.
Speaker #4: But Kedar, you can come in.
Speaker #1: Yeah, yeah. I mean, I would just—Neha, I would urge you to normalize the 27% of last year. If you remember, in Q3, we had allocated more products for the North American region.
Speaker #1: And for that quarter, and for the full year, that pulled up the profitability. So if you normalize last year's margins to maybe 24–25%, yeah, then we are all driving towards margin expansion.
Speaker #2: Understood. And my second question is on a flipper set. Given that the existing biosimilar has closed a very high market share, what's the thought process there?
Speaker #2: Would that be a very slow ramp-up in market share? How do we, how do we think we can get a fair market share in a flipper set?
Speaker #4: Well, I think if I can respond to that question, the first thing is that there was a large concern in the past that, in the ophthalmology space, whether biosimilars would be an accepted space.
Speaker #4: I think that myth's been busted already, and there's clarity that biosimilars are high-quality products and will be accepted and will thrive in the ophthalmology space.
Speaker #4: So, I think that path has been paved, which is a very good sign. Where it places us is in a very strong position as we come into this month, with a clear path for the next few months.
Speaker #4: We've got some active contracts that Matt, Eric—who is our Chief Commercial Officer—and his team in North America have been tying up.
Speaker #4: So we believe Neha, this would almost every ramp has a start, and then it takes some time before it reaches peak. Now, we should have a good straight out the gates a good start to this, which will build up towards the second half of the year.
Speaker #2: Thank you, Shreyas.
Speaker #1: Thank you. Next question is from Surya Patra. Kindly announce your company name and proceed with your question. Surya Patra, we are unable to hear you.
Speaker #2: Am I audible?
Speaker #1: Yes.
Speaker #2: Yeah. Thanks for the opportunity. This is Surya Patra from Philip Capital. My first question is, let's say the profitable growth, again, so while we have been seeing a kind of study and consistent improvement in the profitability of the biosimilar business, which is earlier was facing challenges, but now we are facing challenges from other two businesses, Syngene as well as the other generic business.
Speaker #2: So the way Syngene guided for this year, there is low growth and challenges visible. So, given that, whether despite the ramp-up in the biosimilar, should we see a kind of a moderated, kind of a profitable performance for Biocon as a whole for FY27? Or how should one see the challenges of Syngene for the current year?
Speaker #4: So, Surya, let me first direct you to a very important pie chart that we have shown in our press release. And I think you should actually pay attention to that.
Speaker #4: As you know, 85%, or 87%, or 83% of our business comes from biopharmaceuticals. The research services business accounts for about 17%. So, I think you should understand that the main growth drivers of our business are coming from biopharma, largely from the biosimilars business, as we have shared in my opening comments.
Speaker #4: So, we do not believe that a temporary decline in profitable growth for Syngene is going to impact the performance of Biocon as a whole.
Speaker #4: I believe that Biocon is positioned very well for good, profitable growth, because the main growth engine for Biocon is biosimilars, and even the generics business is now beginning to deliver better performance, better growth, and better profitable growth.
Speaker #4: So, I think you should read this in a very different way than assuming that every business is equally apportioned. That's really the way I would guide you to look at the Biocon business, and not just jump to conclusions.
Speaker #4: That's because when one part of a small business is not delivering as it used to, it will impact the rest of the business. So I hope I've answered your question.
Speaker #2: Yeah, that's clear, ma'am. So, in fact, given the kind of biosimilar progress we have been anticipating, it was expected that possibly this year onwards we'll see a kind of meaningful progression.
Speaker #4: So I must also remind you, Surya, that our performance in the past has been severely impacted by a lot of the structured debt that we had included in our financials because of the structured equity element, which is now retired and behind us.
Speaker #4: And I think that's why you're seeing now a return to good, strong, sustained, profitable growth.
Speaker #2: Sure, sure. My second question is about the biosimilar progression itself. So we have been guiding about second half pickup from all the products. So is it possible to give some sense or color about what is the kind of uptake that we are witnessing either in terms of penetration or enrollment or kind of the kind of a market engagement that we would be having or even in terms of the kind of a contracting cycle visibility that we would be having for products like Adele, which take into S-Part as well as Deno, along with the Epliver, Septra.
Speaker #4: So maybe Shreyas, you would like to take this, but let me start by saying that we have guided for new launches. And you just heard that Aplivercept has just entered the market this month.
Speaker #4: And I think that is going to be a big contributor to growth this fiscal. Apart from that, insulins are tracking very well and very robustly.
Speaker #4: And with the commissioning and approval of the second drug product line in Malaysia, that's, of course, now unlocking a lot of the capacity challenges that we used to face.
Speaker #4: In terms of addressing the demand, I think when you look at all our other products, they are tracking well. And maybe, Shreyas, you'd like to add to what I'm saying.
Speaker #2: Yeah. Look, I think that's said very well. It sets the base, Surya, in terms of where we are. Just to add a little more color to what Kiran said, these are the five products that we've always said we're going to be focusing growth on.
Speaker #2: Two, we just talked about Aflibercept, Septrin, and Denosumab. But beyond that, Aspart and Ustekinumab, where you've seen a tremendous offtake in the past year.
Speaker #2: And then you've got Bevacizumab, which is, in some sense, understated at this point in time. These five products will drive growth. We've been contracting for some of these products in recent days.
Speaker #2: You know that in August, July-August through September, July to September is the window when most of these payer negotiations finalize for the full year of the following year, for the following calendar year.
Speaker #2: And I think what I can tell you at this point in time is, we are in a good place to have those conversations. It would be premature to disclose exactly what those are.
Speaker #2: But we are now in that place where we would be looking to bring these products to market. Some of the other things, like I was responding to Neha before, may not really be a commercial play.
Speaker #2: They are also fee-for-service models, which exist for Part B products, which is in the medical benefit space. And those are something that will come straight out of the gate as we launch these products.
Speaker #2: And Apligraf will see the benefit of it, which is why we've been saying that the second half of the fiscal year will be stronger than what you're expecting to see in the first half.
Speaker #2: Just to give you some broad color on that.
Speaker #1: Yeah, yeah. Thank you, sir. Wish you all the best.
Speaker #2: Thank you.
Speaker #3: Next question is from Shyam Srinivasan. Kindly announce your company name and proceed with your question.
Speaker #1: This is Shyam Srinivasan from Goldman Sachs. Thank you for the opportunity. Just going back to the biosimilars, both approved as well as the launches that have just recently happened.
Speaker #1: If you could just characterize how some of the franchises are working—for example, the oncology franchise or GIVRI—how are they doing in terms of either market shares?
Speaker #1: Because I think Kiran Ma'am had also mentioned that—de-emphasis on market share as a metric to measure success, let's assume. So how should we look at our core portfolio?
Speaker #1: Maybe US, Europe—if you could also comment. Oncology as well as diabetes portfolio, the insulins. And as part, for example, I know the launches have happened in immunology.
Speaker #1: So, just want to understand how the base business, even in biosimilars, is tracking.
Speaker #4: Shreyas, you might want to take this.
Speaker #2: Yeah, very comprehensive question, Shyam—probably the longest response. I'll try to be brief, and I'll lean on my colleague Matt to jump in if and when needed.
Speaker #2: Matt, please feel free to jump in. I think your first question was in terms of how the legacy products, established products, have been performing.
Speaker #2: I do want to point out to you, and others on the call, and this is something that I've been seeing for a very long time: the biosimilars business is very enduring, both in terms of its margins and its revenues.
Speaker #2: The products continue to be strong. We had launched Fulphila in 2018. It's now eight years that the product's been in the market, continues to drive margins, and continues to have market share, in case that's one of the ways to look at how it's been performing.
Speaker #2: It continues to be a fifth of the market, a fourth of the market, whichever way you look at it. It continues to deliver strong performance and contributions to the bottom line.
Speaker #2: Same with Ogivri, which is in the HER2 breast cancer space. We're looking to add some more products in that. Bevacizumab, I just talked about.
Speaker #2: But the legacy products are these two. Insulin, which you talked about, was another legacy product that we launched in late 2020, early 2021. It's been there for a very long time, continues to hold market, and continues to deliver margins.
Speaker #2: We've been very cautious. It's the market share for the taking. We've not gone all out and wanted to take everything at a go. But this is a very, very sustainable business in that sense.
Speaker #2: And, very responsibly, we've taken market. This was the US. In Europe, it's a play where we focused on the immunology space, the inflammation space.
Speaker #2: And you've seen Adalimumab do extremely well for us for the last seven or eight years. We've had a very, very strong position, despite the fact that there is competition which has played around with concentration and strength, because of the kind of quality that we brought to the market.
Speaker #2: And the reliability of supply that we've been able to provide. So I believe that legacy products in biosimilars is a very strong indication that they provide enduring margins for a very, very long time.
Speaker #2: So this was one myth which was again challenged and busted—that they will fall off in a few months. So that's not the case.
Speaker #2: On the new product launches, I think I responded in a fairly detailed manner to Surya, but I'll pause and check with Matt, because Matt's the one who's really driving a lot of this growth that you're seeing.
Speaker #2: In our advanced markets, along with Sushil in the emerging markets. But over to you, Matt.
Speaker #5: Yeah, thanks. Thanks, Shreyas. Just a little more color, particularly around the oncology products in the US. So, those established products remain very strong from a market access standpoint.
Speaker #5: And as Shreyas said, with that strong stability come strong margins, and that's what we're looking at. Our focus is continued on select channels to drive the sustainability.
Speaker #5: So you see this market share maintained as profitability continues to be strong. Also, on our other products, market access, as Shreyas said, going through into the July calendar year, remains very robust in our ability to add additional market access and contracts in the US.
Speaker #5: This is why both Kiran and Shreyas commented on 'you'll see these growths start in the second half.' So, lots of good momentum there, as Shreyas said. Not a lot more to add in Europe.
Speaker #5: Exactly what's going on there with the adalimumab and continued momentum in some of our key oncology products, and absolutely we're excited about all the new launches—especially aflibercept, where we see strong demand and strong opportunities within the US.
Speaker #5: Particularly around the market access piece. Thank you, Shreyas.
Speaker #1: Thank you. Thank you for the detailed response. Just a second question, and I'll be brief; it is on the generics part, and maybe Kedar, just on the profitability.
Speaker #1: So we are showing 7% EBITDA. I know it's been a little volatile on that line item, but do you foresee, now with the kind of growth that we have seen, that there is a path to higher profitability?
Speaker #1: And the split of API to formulations, how is that trending? Thank you. All the best.
Speaker #2: So, I think the split of API to formulations is about 60-40 this quarter. Historically, it's been two-thirds and one-third, so maybe eventually it will go there.
Speaker #2: Profitability improvement is an agenda across all three businesses, Shyam. So we are not guiding specifically, but as the new launches kick in, and as our work on cost continues, margin expansion will remain a priority.
Speaker #2: And that will also include a hard look at operating expenses, a hard look at what is relevant for us to pursue in R&D. And we do have an active cost improvement program in materials and factory overheads as well.
Speaker #2: So, all of this is expected to improve, and not only the portfolio improvement because of launches. We'll continue to do work on all these levers, Shyam.
Speaker #1: Thank you. Thank you and all the best. Biosimilar, you may click on 'Raise Hand' to ask your question. Next question is from the line of Damyanthi Kirai.
Speaker #1: Kindly announce your company name and proceed with your question.
Speaker #6: Hi, good morning. This is Damyanthi from HSBC Securities and Capital Markets Limited. So, my first question is, again, continuing on your efforts for optimizing cost.
Speaker #6: So, Kedar, you mentioned you have been working on a lot of initiatives to really assess the cost and make improvements wherever it's feasible. So I just want to understand two things.
Speaker #6: First, could you provide an update on the utilization of some of the new units, including the unit in the US, and what kind of cost drag you are incurring as these new plants scale up?
Speaker #6: So that's my first question.
Speaker #2: Yeah. So, I think Damyanthi will not call out any specific number at this stage in terms of the cost drag. But what has happened is, the improvement that you're seeing in the generics profitability is because of three things.
Speaker #2: One is some of the premium on API products—pricing premium. Secondly, optimization of the R&D portfolio. And thirdly, OPEX. So, I think all these three levers are helping.
Speaker #2: And there will be some time lag before the new units start contributing meaningfully in terms of utilization. But our numbers for the subsequent quarters do show that.
Speaker #2: So, as things improve, the numbers will reflect that higher utilization and the associated benefit on revenues and margins.
Speaker #6: Sure. And when you look at what Kedar is saying, I think the focus there has clearly been on fiscal discipline, and that is why you are saying that what Kedar just mentioned is—whether it is in the R&D alignment to business in terms of whatever we've outlaid there, or the cost synergies that have come in because of the operating leverage, because we were able to merge the two businesses—that it has offered.
Speaker #6: That is the first level of benefit that you are seeing come through in the cost benefit that you are seeing. And this will expect to be expect this to remain so it's not a one-off that will happen we expect this to carry through over the course of the coming quarters as well.
Speaker #4: I think, Damyanthi, I would like you to remember that one of the key objectives of the integration of Biocon and Biologics was to basically unlock a lot of synergies and avoid a lot of the duplication in our businesses, which has actually been delivered and will continue to deliver.
Speaker #6: Sure, ma'am. So, when we look at the current operating cost structure, a lot of improvements have already been achieved, and we think we can continue to improve on the current structure as well.
Speaker #6: And then, obviously, the growing top line will contribute towards the leverage benefit. That's the way we should assume.
Speaker #4: Yeah.
Speaker #6: Okay. Also, my second question is again on cost. Kedar, should we look at the current quarter depreciation number as the number to sustain in coming quarters as well?
Speaker #6: So if also you can explain what has led to the increase versus last quarter's depreciation number.
Speaker #2: Yeah, yeah. So that line includes—as the new launches happen in the market, the corresponding amortization starts to hit the P&L. So that's the reason the number will keep moving as new launches do come in.
Speaker #2: So that's primarily the reason. And whenever the facilities get fully capitalized and start operating, that will come in as well.
Speaker #6: Sure. And my last question is, you have launched, I think, all the targeted products—five products—which we discussed. So, when I look between now and, say, FY28 or FY29, what I understand is we don't have much more in terms of products to be added to the portfolio.
Speaker #6: And focus will be on ramping up the recent launches. Or is there any other product, apart from Etanercept, which could come in '29 that should be assumed between now and the next two years' time frame?
Speaker #4: We would be happy to surprise you, Damyanthi, in a nice way. Would that be okay?
Speaker #6: Yeah. Definitely. Thanks.
Speaker #4: We have been working on the pipeline. We have not necessarily talked about everything, but the focus has always been to see that we have a new product launch, either in the US or in Europe.
Speaker #4: Every year from here on till the end of the decade—that's what we've shared visibility to. And we will continue to strive towards that.
Speaker #4: So, you should continue to expect us to—or at least see that we try to—work towards that.
Speaker #6: Okay, thank you. That's helpful. Wishing the team all the best.
Speaker #4: Thank you.
Speaker #1: Thank you very much. The next follow-up question is from the line of Siddhartha Gandhi. Please go ahead.
Speaker #5: Hi, thanks for the opportunity for the follow-up. Just continuing on the previous discussions on profitability and cost improvement—thanks for a really detailed cover, Shreyas and Kedar.
Speaker #5: Just to understand this further, given that there have been a few new launches on the generic side—A, is there any launch expenditure that could see some operating leverage later as those scale, and therefore, could we see profitability improvement?
Speaker #5: And in the context of what you mentioned about looking at both operating costs and R&D projects, how should one think about the growth trajectory of the generics business?
Speaker #5: If R&D projects are going to be prioritized to really only the focus ones, and on the biosimilars business similarly, right? In the current profitability, given the spate of new launches that has happened recently, are there meaningful launch expenditures that could see operating leverage going forward?
Speaker #4: Kedar, do you want to take that?
Speaker #2: Yeah, yeah. I think, Siddharth, you have asked two or three interesting questions, and maybe we'll take it offline. Some of those queries can be addressed specifically in a detailed manner.
Speaker #2: But the operating expenses—we are not cutting what is required to be spent. So I want all of you to remember that and keep in mind that we are not cutting the muscle.
Speaker #2: We are cutting the fat wherever required, and the integration offers us synergies in operations, commercials, and enabling functions. So, those are the areas which we are taking a very hard look at.
Speaker #2: And the numbers do reflect that. The relation between new launches and the support required in terms of marketing and commercial expenditure—that will get done.
Speaker #2: And that will be more than offset by the revenue increase. So, we'll be very calibrated, and we'll be very mindful of what needs to be spent.
Speaker #2: And what can be optimized. But I think you have asked two or three questions.
Speaker #4: Yeah. I think in my opening comments, I clearly talked about—I used two words. I said 'strategic' and 'synergy.' And I think that's what we are doing.
Speaker #4: I think we are basically calibrating all our expenses, whether it is R&D. We are really looking at the synergy that we can derive through a very, very well-thought-out strategy.
Speaker #4: We are not going to compromise the future of any growth opportunity by cutting back on anything. So, when we talk about R&D, we have a very strategic view of where we should be playing and investing in R&D.
Speaker #4: And I think that's what you will see—delivering better, robust growth. I don't think we want to become just opportunistic in R&D investment, but we would rather be strategic in the way we are investing in high-growth opportunities.
Speaker #5: Very good, thank you. And Kedar, I'll take that offline. Thank you.
Speaker #2: Thank you, Siddharth.
Speaker #1: Thank you. Participants, you may click on the 'raise hand' icon to ask a question. Next question is from the line of Ankit Shah. Kindly announce your company name and proceed with your question.
Speaker #3: Yeah, hi. Thanks for the opportunity. This is Ankit from Pioneer Rubico EMC. My question pertains to debt and working capital. I noticed that net debt has increased sequentially.
Speaker #3: By around ₹1,100 crore. And also, the working capital has risen because of higher inventory and receivables. So, Kedar, could you explain the reasons for this and how you expect it to trend for the rest of the year?
Speaker #2: Yeah, see, the increase in working capital is largely in inventory, and that's basically because we are getting ready for the second half scale-up in both biosimilars and generics.
Speaker #2: So that's the good increase in the working capital, and that shows our confidence in the expected scale-up in the second half. The net debt increase is linked to the working capital.
Speaker #2: These are not any other term loans. So, we are in line with the plan that we have. The idea is to focus on productivity and efficiency, even in working capital.
Speaker #2: So, as things progress, you should expect us to maintain robust days of receivables. And DIO—days of inventory outstanding—which used to be more than 400 for biosimilars in the past, has now been normalized to about 280–290.
Speaker #2: And there are opportunities to improve on that further. But the investment that we have made this quarter in inventory and working capital is to fund the growth of the expected scale-up in the second half.
Speaker #3: Got it. And do you expect the net debt to reduce by the end of the year, or would it remain flattish? And also, regarding the quarterly interest cost, I mean, we had talked about the 210–220 range—would that also stay, or could that increase in the coming quarters?
Speaker #2: Yeah, so year on year now there is a significant decrease. So, there is a 22% decline in finance cost from last year. Last year, we booked around ₹280 crore.
Speaker #2: This quarter, we have booked around ₹213 crore. And this is despite the rupee depreciation impact on the dollar interest that we pay. So, the constant currency reduction is actually far higher.
Speaker #2: And we have said that we are working on this actively. Every single dollar that we get from free cash, the first use of that is the reduction of the debt.
Speaker #2: So, as things progress, you will notice the debt reduction as well.
Speaker #3: Got it. Thanks a lot, and best of luck.
Speaker #2: Thank you.
Speaker #1: Thank you, participants. You may click on the 'raise hand' icon to ask a question. Next question is from the line of Iyash Sinna. Kindly announce your company name and proceed with your question.
Speaker #1: Iyash Sinna, no response. Participants, you may click on the raise hand icon to ask a question. Next question is from the line of Jini. Kindly announce your company name and proceed with your question.
Speaker #4: Yeah. Myself, Jini. I'm an individual investor. I just would like to know what would be the impact of tariffs announced by Trump, which would be applicable after two years.
Speaker #4: However, are we well positioned to improve the manufacturing capacity in the USA?
Speaker #3: Matt, do you want to respond to that?
Speaker #2: Yeah, sure, Shreyas. So, the recent announcement by US President Donald Trump regarding additional tariffs was just a tweet. Right now, the law states that, within the United States, generics and biosimilars are exempt.
Speaker #2: So legislation would have to be passed and redone, and I can tell you from spending numerous days on the Hill in Washington that it is a bipartisan view that access and affordability of generics and biosimilars must continue to exist.
Speaker #2: And by putting tariffs on this and adding additional costs, it would absolutely conflict with this. The other interesting thing about this is that in the next two years, the current president, Donald Trump, will be very close to his last months in office.
Speaker #2: So, there's a lot that has to happen. What we're doing as we look at it today, because it is law in the United States, we're continuing to push with our congressmen and women, as Biocon, and with our associations and affiliations in policy, that biosimilars and generics are great.
Speaker #2: They bring cost savings to the United States, and it should continue to be bipartisan between the Democrats and the Republicans to save costs to the American citizen.
Speaker #2: So right now, it's just a tweet. Certainly, with our President, we have to take anything he says seriously and continue to watch it. But current law states it does not apply, and it would have to be a change in legislation.
Speaker #2: Thank you for the question.
Speaker #4: I would also say that the Biocon group is certainly looking at having the required footprint in terms of local manufacturing wherever needed. So, I think that's something else we are also looking into.
Speaker #4: And we do have a number of partnerships in this respect, so we will watch this space.
Speaker #3: Yes, ma'am.
Speaker #4: Does it mean that we are increasing our capital expenditure within the USA? I don't think in manufacturing. No, I don't believe that we will be increasing our capex in establishing new facilities or capacities in the US.
Speaker #4: We will look at it through partnerships, if required. And we already have some of our own manufacturing facilities, which we will obviously utilize. Thank you.
Speaker #1: Thank you. Next question is from the line of Ripple Shah. Kindly unmute. Kindly announce your company name and proceed with your question. Ripple, we are unable to hear you.
Speaker #4: Sorry.
Speaker #1: Hello?
Speaker #4: Hello?
Speaker #1: Ripple, your voice is coming through very muffled. Can you please speak a little louder?
Speaker #4: Yeah. Am I audible?
Speaker #1: Slightly better.
Speaker #4: Yeah. So what is our current state in Bicara, and is there any plan to monetize?
Speaker #1: Ripple, sorry. Again, your voice is not clear.
Speaker #4: What is our current state in Bicara and any plan to monetize it? I would like to answer that by saying that Bicara is no longer a significant investment for Biocon.
Speaker #4: And we will look at monetizing it at the right time. Bicara is doing exceedingly well, and we are very pleased that we have been able to create this value for Bicara by establishing it in the first place.
Speaker #4: And we will decide when is the right time to monetize. What is our current state? The current state is we have a holding of we have a small holding in Bicara and we are at this moment not contemplating to monetize it.
Speaker #4: Thank you.
Speaker #1: Thank you. Participants, you may click on the ‘raise hand’ icon to ask a question. As there are no further questions, I would now like to hand the conference over to Mr. Prashant Nayak for closing comments.
Speaker #2: Thanks, Neerav. And thank you, everyone, for joining this call. If you have any questions that are unanswered, or any other questions, please reach out to the IR team and we'll be happy to address those.
Speaker #2: Thank you once again.
Speaker #3: Thank you.
Speaker #4: Thank you.
Speaker #1: Thank you. Thank you very much. On behalf of Biocon Limited, that concludes this conference. Thank you all for joining us. You may now leave the meeting and disconnect.
