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Biocon Ltd
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Ladies and gentlemen, good day and welcome to Biocon Limited Q1 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Saurabh Paliwal from Biocon Investor Relations team. Thank you, and over to you, sir.
Thank you, Amber, and good morning, ladies and gentlemen. I am Saurabh Paliwal from Biocon Investor Relations, and I welcome you to this call to discuss the financial performance for first quarter of fiscal '19 -- '20. Before we proceed with this call, I would like to remind everyone that a replay of today's discussion will be available for the next few days, about an hour following the conclusion of this call. The call transcript shall be made available on the website in the coming days. As part of the management team today, we have our Chairperson, Dr. Kiran Mazumdar-Shaw 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 have forward-looking statements based on management's current beliefs and expectations. They 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 these forward-looking statements. After conclusion of this call, if you need any further information or clarifications, please do get in touch with us.Now, I would like to turn the call over to Dr. Kiran Mazumdar. Over to you, Ma'am.
Thanks, Saurabh. Good morning, everyone. I welcome you to Biocon's earnings call for the first quarter of FY '20. Let me start with key financial highlights for this quarter. Revenue from operations registered INR 1,466 crores in Q1 FY '20, which is up 30% from last year. From a segment perspective, Small Molecules reported revenues of INR 480 crores, up 20% from last year. Our Biologics segment revenue grew 96% to INR 490 crores. Branded Formulations were at INR 133 crores, down 9%, while Syngene was up 4% at INR 421 crores. Gross R&D spend were INR 110 for this quarter, which corresponds to 11% of revenue ex Syngene. Of this, INR 79 crores is reported in the P&L and the balance has been capitalized. The capitalized amount relates to various biosimilar development programs, including oncology, antibodies as well as insulins. The increase in these spends as compared to last year is largely on account of higher spends across Small Molecules, biosimilars and novel development programs. EBITDA for Q1 FY '20 stood at INR 462 crores, an increase of 51% over last year. Consequently, EBITDA margins have improved from 26% last year to 31% this fiscal, reflecting a very positive impact from growth in our higher-margin Biosimilars businesses across global markets. Core margins, that is EBITDA margin net of licensing impact of ForEx and R&D, stood at 36%, up from 27% last year. Net profit for the quarter stands at INR 223 crores, representing a very robust growth of 86% over last year. This was driven by significant improvement in the quality of our earnings led by higher profitability in the Biologics segment. This number excludes an exceptional tax charge pursuant to the restructuring of group entities, which then brings the number INR 206 crores.I will now discuss our business performance this quarter. Small Molecules, the strong revenue growth of 20% in this segment was led by higher sales of APIs as well as a robust performance of our Generic Formulations portfolio. API growth was once again driven by immunosuppressants. In Generic Formulations, the business built on its strong performance in the previous quarters, with Rosuvastatin and Simvastatin formulations maintaining their market shares and recently, Atorvastatin, which has just been introduced, registered good growth through the acquisition of key accounts in the U.S. market. Sequentially, this segment saw revenues increase 2% over Q4 FY '19, largely aided by the growth in Generic Formulations. On segment margins, a better product mix, which included higher sale of immunosuppressant in FY '20, resulted in improvement of segment margins when compared to the same period last year as well as the sequential quarter.A few comments on investments in our new fermentation-based API capacity expansion. We recently started work on a new greenfield fermentation-based manufacturing facility in Visakhapatnam, Andhra Pradesh to cater to the anticipated strong volume growth in the Small Molecules APIs business. This expansion will enable us to deliver on our vertically integrated strategy of developing and commercializing our own ANDA and also service the needs of our global API customers. Expected investment in this capacity is roughly INR 600 crores and the facility is expected to be operational over the next 3 years, followed by commercialization based on regulatory approvals in major markets.Now coming to our Biologics segment, which has seen an outstanding growth this quarter. This business has continued to maintain its strong momentum that you saw in the last quarter of FY '19 and this quarter, we have seen revenues almost double from INR 250 crores last year to INR 490 crores this fiscal. Strong sales of Fulphila, biosimilar Pegfilgrastim in the U.S., coupled with higher revenues of insulin products in the emerging markets resulted in the strong growth seen this quarter along with our biosimilar Trastuzumab sales in many markets in the emerging markets. Biosimilar product sales in the EU also contributed to sales, which also includes our biosimilar Trastuzumab. On a sequential basis, revenues grew 9% over Q4 FY '19 on the back of our biosimilars.Commenting on certain business highlights. Ogivri, which is our biosimilar Trastuzumab codeveloped by Mylan and Biocon was the -- became the first Mylan biosimilar to be approved in Canada and the second biosimilar from Biocon and Mylan's joint portfolio to be approved in the country. Our Malaysian insulins facility underwent a preapproval inspection by U.S. FDA for Glargine Drug Substance, a Drug Product and Device assembly facilities. As already shared in the public domain, we received 12 observations across the 3 units. We are confident of addressing these expeditiously, and we do not expect any change to Mylan -- our partner Mylan's commercialization plants for Insulin Glargine in the U.S. Our partner Mylan has extended the commercialization rights for in-licensed Hulio, biosimilar adalimumab from Europe to global markets. Biocon under the terms of global partnership with Mylan for monoclonal antibodies, retains its economic interest in this expanded in-licensing arrangement, and will gain a share of profits on global markets. We continue to extend our geographic footprint in the developed markets with our partner, Mylan, launching Ogivri, that is biosimilar Trastuzumab; Semglee, that is biosimilar Insulin Glargine; and Hulio, biosimilar adalimumab in more markets in Europe during the quarter. In the emerging markets, our Biosimilar portfolio continues to do well with approvals for biosimilar Trastuzumab and Insulin Glargine during the quarter.Update on clinical trial progress. Bevacizumab, the global Phase III clinical trials for this molecule is on track with submissions expected in the EU and U.S. by the end of this fiscal. Insulin Aspart. Global Phase III clinical trials for biosimilar Insulin Aspart remain on track, EMA submission is planned in the second half of FY '20 while the U.S. FDA submission is expected in mid-calendar year 2020. We have initiated a Phase I PK-PD clinical trial of our recombinant human insulin for the U.S. market in Q1. In terms of margins, the Biologics segment reported PBIT margins of 38% this quarter as compared to 11% reported last year and 33% last quarter. The improvement of segment PBIT margins is on account of strong growth in biosimilar sales globally. And on a sequential basis, PBIT margins improved due to a higher contribution from Fulphila sales in Q1 FY '20.Coming to capacity planning. Our investment strategy for manufacturing has been to build capacity in a modular manner in line with our projections of the market opportunity. This has allowed us to scale up capacity in response to higher-than-expected demand, even as we balance exposure to any underutilized capacity and cost in the early phase. We will continue to invest in expanding our manufacturing capacities to address volume growth on account of increased penetration of our products in developed and emerging markets and also to support new biosimilar pipeline development and launches. Last month, we announced that our new drug products manufacturing facility in Bangalore received EU GMP certification. This facility further strengthens our ability to deliver products to meet increasing demand and launch our products in more markets, including the U.S. in due course. The new monoclonal antibodies facility in Bangalore is expected to be commissioned in FY '20 followed by qualification and validation activities. Commercial operations from this new facility are expected to start late FY '21 or early FY '22.Now outlook for Biosimilars. Pegfilgrastim continues to be a great growth opportunity for us with a favorable competitive and commercial landscape in the U.S., coupled with strong commercial efforts by our partner, Mylan. Our strategy has been to focus on the quality of earnings in the market share that we have got. We are confident of capitalizing on this opportunity going ahead. We expect the growth momentum in Biologics to -- revenues to continue in FY '20, driven by new product introductions, market entries and increased penetration of products already launched by our partners in various markets. We expect substantial full year growth in Biologics revenue with gradual sequential expansion. With a significant part of this growth expected in the second half, the positive impact on margins resulting from this growth should be visible in FY '21 and beyond. Given our current position and how the biosimilar industry is evolving, we believe we have both an opportunity and an obligation to shake the biosimilar space. We have therefore set ourselves a vision of becoming a global leader in Biologics, delivering affordable access to innovative and inclusive health care solutions, thereby transforming patient lives. This will require us to leverage a technology-driven operating model within healthcare, achieved through strategic initiatives that go beyond the product. This is our aspiration to gain market share in key markets unlocked -- underserved patients and differentiate us from competition.Now coming to the Novel portfolio update. Our partner Equillium has licensed Itolizumab for development in U.S. and Canada, initiated a Phase b -- Ib/2 trial with Itolizumab in patients with acute graft-versus-host disease or GVHD and a Phase Ib trial in patients with uncontrolled moderate to severe asthma.Coming to Branded Formulations, we have seen a decline of 9% compared to last year. While the India business registered small growth, U.A.E. declined as uncertainty in the local market continues to weigh down the overall performance of this segment. Market access and oncology divisions were the key growth drivers for the India business with key brands, Basalog, CANMAb, BIOMAb EGFR, Renodapt and KRABEVA reporting strong double-digit growth. The U.A.E. business performance for the quarter continued to be impacted by expected V pricing of branded generic products mandated by the Ministry of Health. On a positive note though, we were encouraged by the uptake of 2 of our biosimilars, CANHERA, which is biosimilar Trastuzumab; and Glaricon, biosimilar Insulin Glargine in the local U.A.E. market. Both products have been well received and have started making inroads in their respective markets.Now coming to Syngene. The performance during the quarter was driven by growth in discovery services and steady performance in the dedicated R&D center service. Growth in development services and manufacturing services were impacted by projects phasing and is expected to pick up through the remainder of the year. In order to meet the growing demand for its services, Syngene has announced opening up of a second R&D location in Hyderabad for the next phase of R&D expansion. The facility is in the final stages of commissioning and is scheduled to be operational during Q2 of FY '20.So in conclusion, I would like to say that we are at an inflection point of our growth story as we pursue our ambition across various business segments with innovative signs at the heart of what we do to develop high-quality products, be it a complex generic, a high-quality biosimilar or a cutting-edge novel therapeutic. We have started the year on a solid footing, delivering a strong performance this quarter. We believe we can build on this start in the coming quarters and deliver a strong overall growth in FY '20. Biosimilar revenue growth is expected to be the biggest growth driver with a larger portion of the growth expected in the second half of this fiscal.And with this, I'd like to open it up to questions.
[Operator Instructions] Our first question is from the line of Neha Manpuria from JPMorgan.
My first question is on the margins. After the strong performance that we've seen in the core margins in this quarter, and given ma'am's commentary that second half would be even stronger for Biologics, is it fair to assume that core margins for FY '20 could be significantly higher than the 32% that we guided or in the level of the 32% that we guided in the last call?
So Neha, we are already at 36% this quarter. I think what we said in the last call is that at least on a full year basis, we do not expect the core margins to go down. The launches that are going to happen in the U.S. later this year, we will have captured sales only for few months. But we will definitely aim to capture an upside on the margins. But at this stage, we are very confident that we'll be able to retain -- sustain the margins of last year and probably this quarter.
So it's fair to assume that margins for this quarter can be maintained?
That is what we aim for.
Understood. And my second question is on Fulphila. We have seen Mylan's market share sort of plateau as [ as per new set of ] data. I understand it might not be fully accurate. But when we look at capacity and given, again, in the opening comments that we will add capacity on a modular basis depending on penetration of our existing products, should we see more capacity coming onboard for Fulphila, let's say, in the later half of this year or next year.
That's correct.
Our next question is from the line of Prakash Agarwal of Axis Capital.
Congratulations on good numbers. Just trying to understand the Q-on-Q run rate better, especially Fulphila. So I'm just trying to understand if the -- is it a function of better market share versus last quarter? Or is it a function of what ma'am said, better commercialization by Mylan? If you could throw some light there.
Sure. I think there is a few different things as we continue to progress in the launch in this market. There is -- there are a few different dynamics. I think there is customer selection, which is an important part of what Mylan is doing, is choosing the right customer to work with where they and we are both getting the maximum value from this product. So I think best part of it is the customer mix, you can say. And then certainly wholesaler buying patterns will impact some of this also there.
Okay. And if I can ask one more, on the Trastuzumab we saw Amgen launching at risk, if you could explain us better in terms of is there an early mover advantage for the strength they have launched? Or they could create a market with that strength? Better understanding would help.
Mylan and Biocon were the first ones who got approval of the Trastuzumab biosimilar in the United States, and you know that Mylan had the first settlement. So we expect that we will be the first to launch without any of the rest. We are very well positioned because we have approved both the 420-milligram multiuse vials as well as the 150-milligram single-use vials that will allow that to best meet the need of various customers. As you are aware, the settlement agreement between Mylan and Roche is confidential.
Okay. And would the understanding be correct that the market currently is sitting at 115 ml versus what Amgen has launched as the 400 plus ml, would that understanding be correct?
Yes. That is correct.
Okay. Understood. And one more if I can squeeze in on the ALZUMAb opportunity, just if you could rehash the timelines for the U.S.?
I think Mylan has already announced that the settlement with AbbVie was for launch in July 2023.
We'll take our next question from the line of Tushar Manudhane of Motilal Oswal Securities.
So just on the material cost, which has been actually flat year-over-year and even down sequentially. So can you just explain that part?
So material cost is flat year-on-year, which is a good news because the revenues have gone up by 30% and the material cost has remained flat, which has resulted in the gross margin increase of 10% on a year-on-year basis. And the reason it's flat is, obviously, we do have a component of profit share booked in our top line, which does not come with any associated material cost. And the second is the better product mix when biosimilar margins are much higher compared to other businesses, the product mix gets better. The gross margin gets better.
Profit share component if you can quantify?
We can't quantify the profit share.
And secondly, so -- secondly, if you can guide for the overall R&D gross, R&D spend for FY '20?
I think we maintain our guidance of 15% gross R&D spend ex Syngene revenues.
Our next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just going back to the question on the capacity constraint for Neulasta at this point of time. Siddharth, if you can just tell us what are the signpost that we need to keep in mind? Is there an inspection that's involved? What could be the likely timeline of that? When do you think the additional line for more Neulasta supplies, Fulphila supplies could come through? I think that's the first question.
So I mean, Shyman, I think we -- all of the above. I mean, we will -- as we've said before, we've always invested in capacity in a modular way. So as we've seen capacity -- the demand come up, we've always planned for capacity. And any capacity that does come up, it will go through these requirements of inspections, filings prior to that and then supplies. But we have actually been doing this quite a bit, so we are quite confident about being able to add more capacity towards the end of the year.
So second half this fiscal is potentially when you could have -- okay, the best way to see it would be increase in market share on Fulphila again in the market and that could be likely second half?
So we believe to bring in more capacity towards the end of the second half of this year. So we believe that we will make a further impact because as you know, we've already had a very, very successful launch of Fulphila. And we continue to create a strong demand for our products. So yes, we will create more capacity to meet up with that increased demand.
Okay. Last additional question on this. I think just going back to Ms. Kiran's earlier comments that you still think this opportunity remains. So is it possible that we can get higher share from here despite, say, a Zandu coming or maybe an Intas coming next year. You still think Fulphila could be bigger opportunity than today?
Sure. I think as we commented, I think Mylan and -- with Biocon, we were the first ones to come in, make a difference for our customers in oncology. And this was the largest oncology product out there in the U.S. and I think with the -- trajectory has been strong, we've been able to choose the right customers there for the launch trajectory. And we definitely think there is further -- there is lot of further upside there.
Got it. And my second question is on biosimilar Herceptin in the U.S. Given that Amgen has done an at-risk launch, is there an acceleration clause in any of your settlement agreements? Let's assume Amgen is there for the next 2 weeks, the Appeals Court does not kind of stop it. Can you accelerate your launch?
As you are aware, there is a confidential agreement between Roche and Mylan in place, and we can't further comment.
Okay. And my last question is on insulin. We got 12 observations across 3 units, what are the severity of these observations? I know Ms. Kiran said actually that the timelines are not getting shifted, but what gives us the confidence that, say next year, whenever the kind of timelines kind of clear up for insulin, will be in the market in the U.S.?
So we take each inspection very seriously, and we work towards improving our quality systems whenever we have these inspections. Each of these observations make our system stronger. And we believe that the part of this preapproval inspection that we underwent that Malaysia, for instance, Glargine has been a part of making our systems further stronger than they've been in the past. We've -- as you know already from a commercialization standpoint, we will be under the provisions of the Hatch-Waxman Act, which prevent us from getting into the U.S. market until March of 2020. So clearly at this point, we do not see any change to our commercialization plans in the United States between Mylan and us.
Our next question is from the line of Surya Patra from PhillipCapital.
Congrats on the great set of numbers. Just on the Biologic capacity that we are -- on that front. So is it fair to believe now we have already hit 100% utilization?
I think the -- Surya, it would be difficult to comment on percentage utilization of capacity. But needless to say, we've always planned for capacity to meet up with the projections that we see coming up for the demands for our products, and we proactively always track towards making capacity available. So I wouldn't specifically comment on percentage utilization. But needless to say, we have made substantial investments to add to our infrastructure and capability.
And I think Kiran had also mentioned in her commentary that new our antibodies plant would be commissioned later this year. So we will have significant enhanced capacity also later, which obviously will subsequently go through regulatory approval process. But we are addressing increasing our capacities, in line with our growth and the demand of the market.
And is it possible to say, sir, the new capacity would be like 2x, 3x of the current capacity that you are having? And knowing the fact that the opportunities in the Biologic and different regions and the kind of progress that you are making in the various regions?
I actually did mention to you that we see ourselves as being a global leader in biosimilar. So obviously, the capacity expansion is going to be along those kind of aspirational lines. So we are putting in very significant expansion in our capacities.
Okay. And on the progress on the European market front, anything that you can add? Like, currently how big is -- in the overall Biologic base or business, Europe has achieved what percentage? Or anything on that European penetration front or the progress front if we can add?
I mean, the European biosimilar market, it's a very sizable market and where we have seen very good share trajectory of the biosimilar monoclonal antibodies, for example. We are very much looking forward to a very meaningful growth contribution in Europe over the coming years and addressing together with our partners the different market appetite in very specific ways.
Okay. Next question would be on the R&D spend front. So if you can just -- see, though there is a -- sequentially there is a big decline in the kind of a quarterly R&D spend and obviously R&D spend cannot be very lean, it could be lumpy. But for the full year, what is the kind of ramp up that one can expect here in the R&D spend front and to the revenue guidance what we had given that it should be around 10% near about of the biopharma revenue, ex of Syngene. So whether that will be the trend that you are guiding?
So Surya, I've mentioned some time back that the R&D guidance for the year is maintained at 15% of revenues ex Syngene at the gross level. So there is no change to it and as you know that there is lumpiness in the R&D expense. So this quarter was 11% but previous quarter was 17%. But on a full year basis, it will be around 15% of the top line ex Syngene.
Okay. And the quantum of capitalization would be -- any sense on that, sir? Since we are taking up [ on those lags ], and which are progressing also.
It will not be significantly different from what you've seen now. I mean, this quarter we capitalized roughly INR 30 crores of R&D. So on a full year basis, you can assume between INR 120 crores to INR 150 crores.
Okay. Just on the ForEx front, sir, anything that is there in the numbers, since in the press release you already have mentioned...
Yes. So this quarter was complete Forex neutral at a group level. We have 0 ForEx gain or loss.
Okay. And on the formulation -- Branded Formulation business, how should one really look at in one hand that we are -- we have rationalized our portfolio domestically to focus more on the critical care business and in the U.A.E side we are seeing our critical care products, again, like the biosimilars getting good progress there. And simultaneously there is a kind of a price correction pressure. So how should one really look at? And this quarter is also kind of negative trend that we are witnessing in terms of growth.
So U.A.E headwinds will continue for another quarter or so. The headwinds are more on the Generic drug there, while our biosimilars both Glaricon and CANHERA is doing very well and growing in line with our expectations. I'll hand over the -- to my colleague Suresh who can comment on Branded Formulations India business.
The Branded Formulations business did have a small blip because of some streamlining of discounts and a change in internal structure in the Metabolics team. But it is gladdening to -- while the impact was because of these 2 reasons, it is very gladdening to note that some of our key brands in oncology, BIOMab, KRABEVA and CANMAb have really gone up to their -- to big growths that we have not seen in the last couple of quarters and also Basalog for -- in Metabolics has grown by 34%.So that's much above market and much above the previous quarters growth. So this is -- so once we expect to see high double-digit growths in the coming quarters through the restructuring that we have done in the Metabolics, which is basically going to bring in more focus on key markets and key targeted customers. And that -- so therefore, it's going to be a change in the coming quarters for Branded Formulations India.
We'll take our next question from the line of Charulata Gaidhani of Dalal & Broacha.
Congrats on the good set of numbers. My question pertains to the recent insulin prevention price control that has been accepted. While I know that it will -- it could create a havoc amongst the U.S. players, what is your -- how do you anticipate this to impact the market going forward?
Thanks for the question. I think there is a few different proposals being circulated now. Some focused on insulin, some focused on the broader market. I think overall, we're just very happy to be in a position that we're in offering a solution for -- that will really help impact healthcare costs in the right direction, right? So I think as we discussed last quarter, we're definitely part of the solution for all of this.I think the -- in some of the broader proposals, there have been explicit recognitions of this with increased incentives for biosimilars on the reimbursement side, which is great to see. On the insulin side, in general, I think overall, changes in rebates and control of list prices is generally, I think, a positive thing for biosimilars and maybe for pharmaceuticals in general, because it -- we know it causes a lot of distortions in behavior. So I think it's generally a positive proposal. We'll see how these things play out, they're all early stage in the evolution. But overall, it's definitely recognizing the impact that biosimilars have to play in this market.
As we are positioning us as a major global player in the biosimilar space, policy-shaping is very high on our agenda and a focus area of Mylan and Biocon.
We'll take our next question from the line of Aditya Khemka of DSP Blackrock.
I have two questions. Firstly, you mentioned the profit share this quarter helped improve your gross margins. But if you could and I appreciate that you can't quantify it, but if you could give us a directional sense as to how much has the profit share changed from your fourth quarter of FY '19 to first quarter of FY '20? Has it like materially gone up 100%, 200%? Or has the profit share been, like, largely the same between the fourth quarter and the first quarter?
Well, it's one of the reasons for the sequential increase, but we cannot break up the supply -- sales from supplies and the profit share. But it has gone up compared to quarter 4.
And that has been a material increase?
Yes.
Okay. okay. And secondly, on the EBITDA margin, a previous participant asked this question. I find your commentary quite confusing to be honest. So last quarter was the -- fourth quarter of FY '19 was 32% (sic) [ 34% ] and quarter of -- first quarter of FY '20 EBIT 36%. And in the same requisite, you aspire to maintain EBITDA margins of both the quarters. So is it 32% (sic) [ 34% ] or 36% or somewhere in between? I mean, what exactly is your guidance there?
It was 34% in quarter 4 and it was 36% in quarter 1. So even the increase that has been there, it's not 32% to 36%, it's 34% to 36%. And it's thereabouts, right? So if you -- I can't get that specific whether it'll be 34%, 36%. Directionally what we said is our core margins will be in line with what we have seen and quarter 1 has been a good quarter. We expect to maintain these margins for rest of the year.
Perfect. And just some color on the Herceptin markets. So I appreciate that a competitor has launched and it is a strength, which is not a big part of the market, but if you could just help us understand the market a little better. Herceptin is an acute therapy, right? So every year does the entire patient pool completely change in terms of -- so is the NRx like 100% of the TRx in a given year? Or is the NRx of the new prescriptions 30%, 40% of the total prescriptions in a given year? How is that split?
Yes. So I think definitely, it's a very -- I wouldn't call it an acute therapy, the -- of course, the therapy can be over the course of multiple years. So the nature of this market is even compared to Pegfilgrastim, it is much longer duration therapy. It's a -- market will evolve differently. And so that nature of the market, we know it's not a generic market to begin with, we have the nature of the market here that you talked about, logistics involved with a different SKU. So we're very excited about the opportunity that's ahead of us.
So do you think it'll pick up that? So you're saying that it's a more chronic therapy compared to Pegfilgrastim, which was a more chronic -- which was a more acute therapy. So in that sense, could you give us some sense of how many patients are incrementally coming on the Herceptin therapy? And then you have Perjeta, which is a combination, so I'm talking of the plain Herceptin product. How many patients incrementally come to the market as fresh patients? And correct me if I'm wrong, but your expectations internal should be do target the new patients or would you also expect to get a meaningful amount of market share in the older patients of the plain Herceptin therapy, the monotherapy?
Sure. I think on a customer-by-customer basis, they will take different approaches, certainly we've seen plenty of examples where the uptake is not limited to new patients. So I don't think our planning is based on -- certainly limiting to that, certainly that's a factor. And there is a smaller percentage of new patients in this market compared to Pegfilgrastim. So I don't think it's black-and-white. It is a different market than Pegfilgrastim, but I don't think it's all -- only a new patient opportunity there.
Okay. Just -- and as a follow-up, excuse me for that. But how are the payers sort of in discussion with you? What is the color that the payers are giving you? I mean do you feel that the payers would -- in the tiering of the reimbursements, they would place you higher to -- any of the older patients come to the new therapy and your biosimilar therapy?
Mylan will be in the position to answer this question. Let me share with you how we see the Trastuzumab opportunity. We, together with our partner, are a global player. And we are very excited to have the opportunity to serve patients across the globe. We are very well positioned when it comes to the quality of our product, our cost of goods as well as our overhead structure with our competitiveness to serve also the middle of the income pyramid, in particular when we talk about what we call most of the world countries and not any more rest of the world countries. Therefore we are extremely excited about the global opportunity of Trastuzumab.
Our next question is from Neha Manpuria of JPMorgan.
Just one follow-up. On Insulin Glargine, while we have maintained our March 2020 -- the timeline for launching the product and getting approval? If it for -- hypothetically for some reason if it's delayed, how much rework would it require to meet the changed standards by the FDA?
Ladies and gentlemen, it looks like the management's line has just got disconnected, we request you to please remain connected, while we call them back.[Technical Difficulty]Ladies and gentlemen, thank you for your patience. We have the management's line now connected.Ms. Manpuria, you may go ahead, please.
Yes. Thank you so much. On Insulin Glargine, while we maintain the time line for March 2020 for Mylan's launch, in case we are not able to meet that timeline due to approval or litigation, how much rework would be required or what time would be required to sort of meet the standard of the FDA for insulin filings?
So just a couple of comments on that first. See what we've always clarified is we've not discussed specifically any launch timing. You've said that the -- under the provisions of the Hatch-Waxman Act where Insulin Glargine will fall under, we won't be able to launch prior to March 2020. Our commercialization plans remain unchanged anyway. So that is the first clarification. The second point that you've asked is what amount of rework would that mean were the agency to ask us to do that? At this point, as we said before, we remain confident that we will be able to work with the agency because we are working with them closely and we should be able to respond to that and have no change in the plans that we have made for commercialization of Insulin Glargine in the U.S.
But in case if -- even if the litigation does not allow us to launch but we get a tentative approval, in that case, no rework would be required. Is that correct? Even if the launch is delayed for some reason?
At this point, we wouldn't want to comment on any litigation or any outstanding procedures on that.
Our next question is from the line of Nitin Agarwal from IDFC securities.
Siddharth, on the other expenses there's been a lot of variation through the quarter, and this quarter is sharply down on a quarter-to-quarter basis. Any specific reasons for that?
So Syngene is down INR 21 crores and Biocon is also down by INR 21 crores. And the main dip is because of the profit share expense that we shared with Mylan on -- in certain territories.
But how should we sort of look at this number? Is there a way to -- you know, from a modeling perspective, this line? Any sense on how should one look at it?
It's difficult to model because there are a lot of moving parts in this line item.
Okay. Okay. And when you say that the gap on the Biocon part is likely because of some professional arrangements you have with Mylan.
That's correct. And the other half is the difference in Syngene.
Perfect. Okay. And on this Pegfilgrastim capacity constraint that we talked about, is it largely -- so is it fair that you're sort of emerging out of our -- the demand sort of outstripping our initial assessments on the product or has there been any other factor, which has played out on that?
I don't think we referred to any constraint at this point. I think we have always said that we have been building capacity and making investments in a modular fashion to address any potential upside. We said that we've really had a very, very strong and successful launch of Fulphila in the U.S. market, probably one of the best that a biosimilar has seen in that market. And we see the strong demand which is coming up and we've been making investments proactively to bring in more capacity to the market towards the later part of the year.
Okay. So just to sort of correct myself, there has been no capacity constraint on our ability to meet Fulphila market? It's essentially the way the market is developing, that -- and we see more pickup in the markets that's how -- and our capacity increase will be in line with that?
I think we are happy with the trajectory that we've had in this market, the success of this launch. And we expect further growth as we go forward in this market, I mean over time.
Okay. Perfect. And lastly on a broader basis on a biosimilar market, so what we've seen essentially is in the -- at least the Small Molecule market, when there are 3 to 4 players, the market gets extremely competitive from a pricing perspective. Now when we see incrementally the U.S. market is still evolving on the biosimilar side, but we have -- when we have potential situations like maybe Trastuzumab or Avastin where -- for example, Trastuzumab already has got 5 approvals. When a point in time, say in a year or so, when, say, all 4 or 5 or 6 guys are in the market, do you see the dynamics in the market being any different than they are in a Small Molecule market situation with 5 or 6 players? And why should that be if it's -- I mean, in terms of if it's going to be any different?
Certainly the -- that 5 or 6 players, first of all, I think many Small Molecule markets nowadays will have much more than that also, right? I think the typical model that we see is -- it would be more than that. The investments involved and the time commitment involved in bringing these products to market are very different than in the generic space. And I think that has the relevant -- a relevant impact on how market dynamics play out. So I think lots that will evolve over the coming years.
Our next question is from the line of Sameer Baisiwala from Morgan Stanley.
Sir, can you give some color on the emerging market of Biologics this quarter, that's quarter 1? And you have talked earlier about volatility in tenders. So how was it during this quarter?
So Sameer, the emerging markets business also contributed to the growth for Biologics segment. And in terms of the tender, yes, that's something that we are working closely. I think as we have alluded to in the past, we have a huge opportunity in the U.S. and Europe. And we want to make sure that we have capacities to address those markets. And the tender business, which tends to be opportunistic, we will address these tender markets as and when we have excess capacity.
Okay. Christiane your comment on the European market and you said that you're very excited about the growth that lies ahead, were you referring to the 3 in-market products? Three products which are already in market? Or is it about the new approvals as you go forward?
I was referencing the penetration of molecules that are already in the market, where in the European market we have seen significant trajectory when it comes to market share capturing for biosimilars across various areas.
Fair enough. The penetration does go much higher and much faster, but we have not seen that so far for your products.
So our own products in Europe, it is very, very early days. And we remain very confident, because there is a high unmet need for Biologics -- for biosimilars in Europe.
Just on XL in the U.S., so you said that Mylan is very choosy about the customer, having a very good customer selection. Who are these customers? They are hospitals, nursing homes and clinics, is that what you have in mind?
Sure. I think it would be inappropriate to get into details like that, I think, on this call. It's a competitive market and these are important choices made by each competitor.
Okay. No worries. One final from my side. Kiran, how are you thinking about the next wave of products, beyond the 3 which are already there in clinicals right now?
As you know, Sameer, we have another partnership with Sandoz, so that's another wave of products. But also Biocon has initiated its own portfolio of biosimilars, which we are very excited about because I think we need to go on -- go into this segment on our own. And as we've gained confidence of developing biosimilars, I think we now have the confidence of taking on many of these developments on our own. So I think you're seeing a very interesting evolution of Biocon as a very aspirational and committed player in biosimilars.
Our next question is from the line of Abhishek Sharma from India Infoline.
Just one on the expense side. You've set up this new subsidiary in Boston, the R&D center, Bicara. Do you anticipate -- so is it now running at full expenses or do you expect that expenses on account of that will continue to go to -- go up through the year, number one? Secondly, similarly on API given the fact that you are now setting up new CapEx, so does the R&D number or the R&D mix changed more towards API?
So the first is we do have some expenses for our Bicara, Boston-based subsidiary in the P&L. It will keep going up during the year as we hire more people, but the R&D expenses already include the expenses incurred on those Novel Molecules. So it will all fit within the overall guidance of 15%. In terms of API, yes, the -- again, the R&D expenses for API and Generic Formulations, India is already included in our -- in the P&L and our R&D expenses. The new facility commissioning will take 2 years. So there will -- the operating overheads will start going up only after the facilities commission, which is probably in FY '22. So till then from a P&L perspective, there will be no additional impact.
Yes. And lastly, on Biologics, is the entity as you envisaged running it as truly independent at some point in future, so far -- on that account is it fully staffed now or do you anticipate expenses going up there as well?
Well, most of the expenses are already in and though we are hiring certain additional employees to complete the structure. And we do not expect a significant increase from the numbers which you've probably seen in quarter 1.
Our next question is from the line of [ Raj Mohan ], an individual investor.
Congratulations on a great set of numbers. Though you talked about the next wave in biosimilars being driven by the Sandoz collab and your own indigenous developments, objectively on a longer-term basis, do you have any revenue targets to share? As you had targets of this $200 million by FY '18? Or to a rounding figure though large like a $1 billion target, do you have any timelines? And is there a possibility that a larger portion of this would be driven by your end-to-end strategy of your own biosimilars?
So I think we are in a very strong trajectory to reach many of these targets that you've talked about. I think we would like to share the -- this -- the numbers as we move along, but suffice to say that we are going to see some very strong growth ahead. And by the time, our own portfolio kind of kicks in, it will be in the next wave of biosimilars, which will be beyond a sort of 5-year time horizon. So we, I don't think, would like to comment on -- of time horizon beyond 5 years at a time. So I think we are very confident that we will, of course, cross our $1 billion target in 5 years' time and beyond, because I think we are quite optimistic about those kind of numbers. But I think we would like to basically shape this market and then share with you a much more well-understood market dynamics and then give you better projections as we move along. But I think we are very, very focused on strong inroads, market penetration and aggressive growth. So I think we are very confident that we will attain these very strong numbers in the years ahead. But at this point in time, we really don't want to give you exact numbers because I think we will be in a better position to do that once the market basically starts being much more accepting of biosimilars, which we expect to happen in a year's time or 1.5 years' time. So then is the time when we should actually tell you what our future prospects in terms of targets are.
Fair enough. One final question. After a robust start to the Small Molecules business this fiscal and a positive commentary to back it, would the growth estimate for the entire year resemble this 20% range?
Well, it's difficult to give a guidance for the full year. I think we are confident to have a good growth but on a full year basis, I won't necessarily confirm that we'll be able to maintain the 20% growth level.
Our next question is from the line of Cyndrella Carvalho from Centrum Broking.
My question was on the Smaller Molecules that would we be able to sustain the kind of margins for that segment that we have reflected or any comment on that?
So this quarter we've had a good margin for Small Molecules compared to quarter 4. The R&D expenses were high in quarter 4. Again, R&D expenses would have an impact on the margins. So again, difficult to give an optics on the segment margins because the R&D expenses would impact these margins. But from a pure operating performance perspective, yes, we've had a very good quarter and a quite strong sales in our immunosuppressants business and a very decent growth in our Generic Formulations business and a good product mix. So we expect definitely to continue this momentum. But the margin -- just to reconfirm, can get impacted because of variability in R&D expenses.
Okay. That's helpful. And coming to the immunosuppressant, ma'am highlighted that it's one of the drivers. So any trends that we are observing there? Any comment on that side?
Well, it's been a very, very important portfolio for us. We have some key molecules, which are amongst the top 5 or 6 products within the portfolio beyond statins. So we -- and it's been a good growth driver, high-margin business. Some of these molecules have a lion's share of the global API market, and we continue to build on that momentum. And the plan that we are now going build in via that is going to address increased demand that's coming in from immunosuppressants.
Okay. And just a clarification, the contribution, the profit share would include the adalimumab contribution also in it?
That's correct.
And is there any meaningful change over the sequential quarters in it, if you could specify?
Well, from adalimumab there's not a meaningful change. I think, as Christiane alluded to that it's early days in Europe and Mylan did launch the product late calendar quarter of 2018 and they are doing quite well.
Okay. And so, ma'am, I mean we had highlighted that we have some plans in terms of unlocking value for the Biologics Biosimilars segment. Any timelines have we booked on it or anything?
So we are in the process of completing the restructuring. We expect the restructuring of the legal entities to complete within this calendar year, and after which we will consider the unlocking at the right time and at an opportune moment.
Anything on the Malaysian plant in terms of the OpEx and the utilization?
Well, we do not talk about utilization. Obviously we continue to supply to various emerging markets and Europe from that facility and later this year once our partner, Mylan, launches the product in the U.S., we would supply it from Malaysia. In terms of the operating expenses, I think we've -- the operating -- fixed operating expenses are to the tune of $55 million for this facility.
Our next question is from the line of [ Rohit Shah ], an individual investor.
I just had one quick question. Is there any timeline on when we're going to update capital by spinning off the Biologics division?
No. There's no specific timeline that we can comment on.
Thank you, ladies and gentlemen. That was the last question. I would now like to hand the floor back to Mr. Saurabh Paliwal for closing comments. Over to you, sir.
Thank you, everyone, for joining us today. If there are any further questions [ or answers needed, ] please do get in touch with me. Have a good day.
Thank you very much. Ladies and gentlemen, on behalf of Biocon Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.