Biocon Ltd

NSE:BIOCON

Earnings Call Transcript 2024-Q1

[Saurabh Paliwal, executive]

Good morning, everyone. I'm Saurabh Paliwal from Biocon's Investor Relations team. And I would like to welcome you to Biocon's earnings call for the first quarter ended June 30, 2023. [Operator Instructions]

Please note that the chat box is disabled, but you can raise any technical concerns by sending us an e-mail to [e-mail].

I would also like to bring to your attention that this conference call is being recorded. The recording will be available on our website within a day, and the transcript will be made available subsequently.

Today, to discuss this quarter's business performance as well as the future outlook for the company we have Dr. Kiran Mazumdar-Shaw, our Executive Chairperson, and other senior leaders from different businesses, including Biocon Generics, Biocon Biologics and Syngene.

I would like to also take this opportunity to remind everyone related to the safe harbor for this call. Comments made during this call may be forward-looking in nature based on management's current beliefs and expectations. They must be viewed in relation to the risks that our business faces that could cause our future results, performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements.

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

With this, I would like to turn the call over to Chairperson for her opening remarks. Over to you, Kiran.

[Kiran Shaw, executive]

Thank you, Saurabh. Good morning, everyone. I welcome you to this earnings call for Q1 of FY '24 and let me start by saying that the Biocon Group has started fiscal year 2024 with a strong revenue-driven first quarter across all our businesses.

Before I dive into financials and business performance, I want to reiterate our commitment to delivering on Biocon's mission of enabling global health equity to affordable access to essential and life-saving therapeutics. We engage on this mission primarily through the 3 principal business growth pillars of our enterprise model: Biocon Generics; Biocon Biologics; and Syngene. While each of these pillars are at different stages of business maturity, we are very carefully and deliberately planning, building and executing on strategies to ensure that each pillar is well positioned for differentiated and competitive growth to build true global leadership in the U.S. area.

As we do this, we keep at the forefront of our commitment to our 4 principal stakeholder groups: the patients we seek to serve; our people whose talent and capability aim to deliver our products and services; our investors for whom we strive to repay their risk and patience with superior returns; and our business partners who support and collaborate with us to achieve our mission.

Let me now begin the business review and turn to our 3 pillars, the first being Biocon Generics. In line with our business priorities, our Generics business continues to focus on growing its product pipeline, creating and capturing value through vertical integration with a clear focus on innovation and digital transformation. Building on its widely recognized strength in fermentation-based products, we are adding capacities and capabilities in new growth areas such as peptides, high potent drugs and injectables. We will also continue to direct our efforts towards forging strategic partnerships to accelerate our expansion into key global markets.

I would now like to turn to Biocon Biologics, which is the next and biggest growth pillar for Biocon. We are building a unique fully integrated global biosimilars platform driven by the depth and breadth of our portfolio; R&D excellence; cost-effective manufacturing; global quality standards; flexible supply chains; and growing global commercial muscle.

We have embarked on a transformational journey with the acquisition of Viatris' biosimilars business. To remind you, this strategic acquisition creates a unique, fully integrated lab to market and globally scaled biosimilars enterprises. It is well positioned to compete in the exponentially growing biosimilars market. In a recent market review by McKinsey, the global biosimilars market is predicted to quadruple by 2030, benefiting from more than $200 billion, I repeat $200 billion of originator biologics losing exclusivity. In its new fully integrated form, with 8 in the market and 12 pipeline products, totaling to a portfolio of 20 assets, Biocon Biologics has become a truly global player and is well positioned to fully capitalize on the enormous future opportunity.

Having closed the acquisition in November last year, fiscal 2024 will see us complete the operational and organizational integration of Viatris' biosimilars business into Biocon Biologics, establishing the foundation of our fully integrated global biosimilars market. I'm pleased to report that we are making good progress against our plan, and I would like to provide you with some key updates.

To ensure business continuity, we have entered into a transition services agreement with Viatris to provide ongoing operational services for a period of 2 years to complete the integration in a phased manner. I am happy to report that we are tracking well ahead of this plan. On July 1, 2023, we've successfully integrated over 70 countries in emerging markets into Biocon Biologics. This successful integration coupled with a strong leadership team gives us the confidence to accelerate the transition of North America and Europe. And I can report that we'll integrate all markets into Biocon Biologics before the end of this fiscal.

Coming to Syngene, the third growth pillar for Biocon. With almost 30 years of experience, Syngene provides end-to-end therapeutic discovery capabilities, including differentiated research technologies and platforms across many disciplines, disease areas and therapeutic modalities. It's extensive and experience and deep expertise have made it a trusted partner to many leading multinational start-ups and medium-sized enterprises as well as nonprofit institutions and academic institutions.

With an established track record in discovery, research and development for small and large molecules, Syngene is now building its capabilities and commercial manufacturing, offering clients a one-stop-shop capability from drug discovery to commercial manufacturing for clients and more balanced model for investors. In fact, Syngene is now a premium and leading company offering biologics manufacturing capabilities.

Now coming to our full year FY '23 integrated report. Having reviewed our operational pillars, I would now like to turn to Biocon's ongoing commitment to ESG. Biocon's ESG agenda continues to advance. We engage with our 16,500-strong workforce to make progress towards our ESG-focused goals including building a diverse, equitable and inclusive workplace.

In FY '23, we evolved our core growth strategy to integrate environmental, social and governance factors. Embedding sustainability into our corporate culture and day-to-day operations enabled us to continue developing life-saving medicines in an environmentally and socially responsible manner.

Having closed an eventful FY '23 on the business as well as the sustainability front, we are proud to have released Biocon's maiden GRI-aligned integrated report. I'm also happy to share that Biocon Biologics has also separately released its first integrated report. I would encourage you to read the reports and provide us with your feedback.

Before I discuss the business performance, I would like to start with a Board update. I am pleased to welcome Rekha Mehrotra Menon and Nicholas Robert Haggar as independent directors on the Board of Biocon.

Rekha is a leading industry voice on technology-fueled innovation and socioeconomic progress. She was a key player in Accenture's growth for nearly 20 years, including over 7 years as Chair of Accenture in India. She was the first woman to serve as a chair of NASSCOM.

Nicholas has over 30 years of experience in leading and building pharmaceutical and health care enterprises. He has held the position of Chairman of Zentiva, CEO of Insud Pharma, President of Medicines For Europe and Regional Director, Sandoz. He is currently the CEO and Founder of HealthQube Limited and a Non-Executive Director of Zentiva.

I will now present the key financial highlights for Q1 FY '24. At the group level, total revenue for the quarter was up 59% year-on-year to INR 3,516 crores. The Biosimilars segment revenue more than doubled as compared to the previous year on the back of the acquisition of Viatris' and biosimilars business. Research Services grew 25%, while Generics had a healthy growth of 15%.

Core EBITDA, which is the EBITDA before R&D, licensing income, ForEx and mark-to-market movement on investments, grew by 42% to INR 936 crores, representing a healthy core operating margin of 28%.

R&D spend for Q1 stood at INR 315 crores, which is an increase of INR 117 crores as compared to last year and corresponds to 12% of revenues ex Syngene.

EBITDA for the quarter was up 69% at INR 808 crores versus INR 478 crores last year. EBITDA margin stood at 23% as compared to 22% last year.

Depreciation, amortization and interest increased by INR 353 crores over last year. This is primarily related to the Biosimilars' business acquisition cost.

Consequently, profit before tax and exceptional items stood at INR 184 crores, and net profit for the quarter stood at INR 101 crores.

I will now discuss the business performance in a segmental manner, and I will start with Generics.

The Generics segment reported an operating revenue of INR 700 crores for the quarter, a growth of 15% over last -- over the same period last fiscal. Profit before tax for the quarter stood at INR 64 crores, with a PBT margin at 9%.

Revenue growth for the quarter was primarily driven by our U.S. Generic Formulations business, where we have benefited from additional contracts that were secured last quarter. There were also new product launches in key ex U.S. markets and on the API side, we continue to see traction with our immunosuppressant API portfolio.

We received 1 product approval from the U.S. FDA, a tentative approval for Lenalidomide capsules, indicated for the treatment of multiple myeloma.

On the regulatory front, we had a successful outcome of a GMP and pre-approval inspection of the oral solid dosage facility in Bengaluru, which concluded in June with 0 observations. This is in addition to the successful outcome of the Hyderabad API facilities pre-approval inspection in May reported last quarter. Both inspections are now officially closed by the FDA, and we have received EIRs for them with a no-action-indicated status.

Coming to investments we made for capacity expansion. During the quarter, we broke ground on a new injectable facility at Biocon Park in Bengaluru. This facility will cater to the long-term sterile fill-and-finish requirements for our Generics business. Work has also commenced on the expansion of our peptide and fermentation capacity expansion in Bengaluru. These expansions are expected to be completed over the next 2 years.

Now coming to Biosimilars.

First of all, I am pleased to report that the market share performance of our key commercial products has significantly improved across key markets. This positions us well as we complete the transition and build on the positive momentum.

Looking first at the U.S. market. We continue to see increasing demand for 1 of our key commercial products, Semglee, our branded biosimilars insulin glargine and unbranded biosimilar insulin glargine, translating to a market share of 12% in June versus 8% last year. The higher NRx or new prescription shares of over 15% demonstrates strong ongoing adoption of our product. We continue to add significant new customers in the U.S. with exclusive status for our insulin glargine, which includes a large managed care network from July 2023 and, more recently, another large payer effective January 2024.

Ogivri, our biosimilar trastuzumab in the U.S., has also steadily increased market share to 11% in June versus 9% last year, with growth coming from new customer contracts.

Fulphila, our biosimilar, pegfilgrastim, continues to gain market share in the U.S., capturing 16% share against 8% last year. The bP market share in July has crossed 19%. It is now the biosimilar market leader, demonstrating position and payer confidence.

We launched Hulio, our biosimilar, adalimumab, in the U.S. on 1st July, representing a key milestone for the business. The U.S. adalimumab market comprises several channels, including commercial, Medicare, Medicaid, Veterans Affairs, Department of Defense and many more, with each requiring different strategies for success. Biosimilar uptick for adalimumab has been more gradual than expected across the industry. Our dual pricing strategy is expected to enable Biocon Biologics to participate in all these segments and we are in active discussion with relevant stakeholders.

On the European front, we continue to see strong demand for our products in major markets. Our adalimumab garnered market share of over 18% and 10% in Germany and France, respectively. We have also seen a strong uptake of Abevmy or our biosimilar, bevacizumab, in Europe, with market share at 5% in May versus 1% last year.

Biocon Biologics' emerging markets business continues to see strong uptake of our flagship products, recombinant human insulin, insulin glargine and trastuzumab. The integration of 70 countries from Viatris' biosimilar business allows us to expand our reach and portfolio within emerging markets.

Now coming to financials.

These increases in market share and the consolidation of the Viatris' biosimilar revenues have led to Q1 revenues doubling over last year. On a sequential basis, we have seen revenues remain largely flat at INR 2,015 crores due to phasing of the tender business in emerging markets and a one-off impact of rebates in the U.S. for our pegfilgrastim. This has translated to a core EBITDA of INR 513 crores with margins at 28%.

It is important to note that in the case of pegfilgrastim in the U.S., the revenue and margin for the quarter were impacted due to higher rebates based on legacy contracts with select customers, which will normalize in the coming quarters.

Post-transition, by the end of this fiscal, in core EBITDA margins are expected to return to the mid-30s. EBITDA margin consequently, for the quarter was at 23%, with R&D investments at 13% of revenues. PBT before exceptions stand at INR 24 crores.

Moving on to regulatory issues.

Yesafili, our aflibercept, was the first biosimilar to receive a positive opinion from EMA-CHMP recommending approval. We are also the first company to receive conditional approval for aflibercept biosimilar from Health Canada with the final approval linked to ongoing litigation.

The clinical trials for biosimilar ustekinumab and denosumab are progressing well, and we are on track for filing by the end of 2023 and 2024, respectively.

In July, U.S. FDA conducted 2 cGMP inspection of our Malaysia facility, issuing 6 observations for drug substance and drug product units and 2 observations for the delivery device units. The inspectors did not identify any systemic noncompliance. We have submitted a comprehensive CAPA plan to the agency and expect to resolve this expeditiously.

We continue to strengthen our global leadership team as we transition the operations of the acquired business. We have appointed industry veterans, Rhonda Duffy, as the Chief Operating Officer; and David Gibson as Global Head of Business Development. These appointments are in line with our commitment towards operational excellence and focused on new growth opportunities.

In summary, we are pleased to see strong uptake in market shares of our products across geographies, with a line of sight on multiple growth catalysts. Our business continues to grow with better performance of our products in existing markets such as glargine in the U.S.; geographic expansion of our commercial products such as adalimumab, aspart and bevacizumab; regulatory advancement of our pipeline assets such as aflibercept, ustekinumab and denosumab.

Finally, coming to Syngene.

Revenue from operations grew 25% to INR 808 crores over last year. Reported EBITDA was up 25% to INR 235 crores, with margins at 28%. Profit before tax was at INR 123 crores, up 33% over last year.

The performance during the first quarter was strong, led by Development and Manufacturing Services and well supported by Discovery Services and Dedicated Centers.

During the quarter, Syngene took important steps as part of its strategic priorities. Earlier this month, it announced a deal to acquire a multimodal biologics plant from Stelis that added an additional 20,000 meters of in-store manufacturing capacity along with a high-speed fill-and-finish facility. The proposed acquisition strengthens Syngene's position as a leading biologics contract manufacturer and development service provider.

Finally, Syngene completed the acquisition of additional land in Hyderabad to support the long-term growth ambitions of its Research Services divisions.

Together, these actions reflect meaningful progress on Syngene's strategy to [ strengthen ] both Research and Manufacturing Services and give it the capacity it needs for the next stage of growth.

In conclusion, I believe the Biocon group of companies has delivered a strong business performance this quarter, essentially a very robust revenue-led performance and established clear pathways for exciting new group inflections.

Building on their shared heritage in Biocon's manufacturing and scientific excellence, Biocon Biologics, Biocon Generics and Syngene are now emerging as uniquely differentiated world-class players in the global biotechnology products and services markets. I firmly believe that these are very exciting times for the Biocon group, and I look forward to reporting our progress in the coming quarters.

With this, I would like to open the floor to questions. Thank you.

[Saurabh Paliwal, executive]

Thank you, Kiran. [Operator Instructions] We start with the first question from Damayanti Kerai from HSBC.

[Damayanti Kerai, analyst]

My first question is understanding the pricing environment for biosimilars a bit better. So ma'am mentioned about Fulphila seeing impact of higher rebates during the quarter. But can you talk a bit about how we are seeing pricing for other biosimilars, say, Semglee or Ogivri? Because in terms of prescription, we have seen pickup in all the products, but when I compare the reported sales, excluding licensing income, we have seen sequential moderation. So I want to understand the pricing part better.

[Kiran Shaw, executive]

Matt, Shreehas, over to you.

[Shreehas Tambe, executive]

Thanks, [indiscernible]. I can jump in after you are done. Go ahead, Matt.

[Matthew Erick, executive]

Yes. So the pricing that we're seeing and discount trends, they've not been uniform. So when you think about your medical side or your pharmacy benefit side, they vary by product and therapeutic area and by channel and there's differences in between each one of those.

So taking a similarity that you would see in 1 product and comparing to another does not necessarily translate. And so I think what Kiran had said in the beginning, particularly around pegfilgrastim, there is a change in how we're looking at the rebates that were legacy. And what we're seeing on the other products, we are seeing very active growth and good growth in those other channels like Semglee, trastuzumab, et cetera, et cetera.

[Damayanti Kerai, analyst]

So specifically on insulin, what we have been hearing, I guess, there has been a lot of focus on lowering the prices from all the stakeholders in the industry. So from Semglee's perspective, did you see any such pricing pressure coming in?

[Matthew Erick, executive]

So I believe you're talking about the WACCs that are changing in 1/1/24. So as we're seeing it right now, no, there's not that pressure. And remember, on the Semglee, particularly, there's 2 channels, you have your branded and you're unbranded. And we're playing in both of those. So there's a mix variation on those rebates between low WACC and high WACC, but the mix continues to be in a positive manner that we're seeing with our insulin glargine and Semglee.

[Damayanti Kerai, analyst]

Okay. My second and last question is post Hulio launch, can you update us on what you're hearing from payers or what has been their response? And any discussion which is currently ongoing for prices, et cetera? And how do you see your share moving up in this particular market?

[Matthew Erick, executive]

Thank you very much for the question. These are very, very early days, and the payers' landscape's still developing. I think what's important that you've seen in early announcements, there's -- let me remind you. The over size -- the overall size of the pie is extremely large with the multiple opportunities we have and then the coexisting and multiple players. So just these early announcements that you've seen come out, on the commercial side, and as Kiran said in her open remarks, there's multiple channels, not only do you have commercial, but you have Medicaid, you have Medicare, you have government, you have GPOs, you have IDNs, so these multiple channels allow us to continue to participate in many aspects as this market is continuing to develop, which is slower. The overall market has seen the payers taking their time. But I think what's important to remember, the attributes of our products and our relationships and sales force, we're very strong with our product, in our 2-click Hulio product, which lots of our feedback from payers as well as physicians like. We do have a strong sales force. We are supporting hub services and patient services. And so we're in active discussions with all the payers as this market continues to develop, which you'll see over the next -- through 2023 and into 2024, as this market continues to develop, and we're well positioned to participate.

[Saurabh Paliwal, executive]

We'll take the next question from Harith Ahamed from Avendus Spark.

[Harith Mohammed, analyst]

My first question is on the core EBITDA margins that you've disclosed for Biocon Biologics. It's at 28% this quarter and I see that it was around 39% last quarter. So there's a sharp decline. And you called out the timing of some tender business supplies and EMs and higher rebates for pegfilgrastim. But if you can quantify this impact of these, that will be helpful because it's a fairly sharp decline.

[Kiran Shaw, executive]

Yes. I think Shreehas you should explain this.

[Shreehas Tambe, executive]

Yes. Thanks, Kiran. Thanks, Harith, for that question. As Kiran said in her opening remarks, we've seen strong growth in our products overall in North America, all our products, and we've shown the year-on-year growth that we've had. So clearly, the business is trending in the right direction, and our market shares are growing.

We've had a situation with 1 product where we've had these managed health care customer where the legacy Viatris contracts that we had, had a higher rebate, which is offered to select customers. Now that was in the region of around $15 million. That has been since reset and most of those resets happened beginning of this current quarter, which is starting July.

So what we are seeing from here on is that we expect these to basically recover over the coming quarters, and we see business recovering to normal margins over the course of these -- as we take these contracts again.

Important to note, Harith, is that July onwards, we've seen pegfilgrastim market share grow to 19%, and we are now the largest biosimilar pegfilgrastim or the largest bPegfilgrastim in the U.S. market. So clearly, that is a good recovery from where we are, and we expect this to get better over the coming quarters.

Harith, does that answer your question?

[Harith Mohammed, analyst]

Yes. Yes. I was on mute. That's helpful. My second question, if you can share the breakup between regulated markets and emerging markets for Biocon Biologics revenues for the quarter.

[Shreehas Tambe, executive]

Sure. That breakdown, we can offer. Chini, do you have that breakdown overall between advanced markets and -- in the past, I think we've given a guidance that it's been roughly around that 70-30 mark, I can share. So Chini, what's the breakdown for this we can share with Harith?

[M. Chinappa, executive]

It's 75%, advanced markets; 25%, emerging markets.

[Harith Mohammed, analyst]

Okay. And a follow-up, the licensing income that you booked for the quarter, that is related to the regulated market geography or the emerging market segment?

And then one more question around the licensing income. This figure of INR 167 crores, those -- the license -- this income pertains to deals that were signed during the quarter? Or these are deals that we have partnered in the past and the revenue booking is happening now?

[Shreehas Tambe, executive]

Yes. As we said, even in previous quarters, we've had this discussion. In-licensing and out-licensing is a part of our business, and we will see this as we decide on our portfolio, and we will in-license product, and you will see that happen in a particular quarter. And you will see out-licensing of certain assets that we may not see we're particularly wanting to develop or in a particular geography, and we will see that happen across a certain quarter.

We saw some of that happening this quarter, and that was the recognition of that INR 167 crores that you talked about. So you will see this happen in a particular quarter. May not necessarily happen in every quarter. As these opportunities mature or we make a strategic decision on what and how we want to pursue our portfolio, you will see these occurring over and around every quarter.

[Harith Mohammed, analyst]

And it's a mix of emerging markets and regulated markets? That's the way to look at the number?

[Shreehas Tambe, executive]

Yes. I mean it could be emerging markets. It could be in an advanced market, depending on how we are looking to license the portfolio and commercialize it going forward.

[Saurabh Paliwal, executive]

We will take the next question of Surya Patra from PhillipCapital.

[Surya Patra, analyst]

So first, a clarification about this $15 million charge relating to the pegfilgrastim. So is it fair to believe that this is a charge because of the new contract and relating to the -- the next 12-month period? And depending upon the pricing situation and the rebate situation and competition, a similar charge on the product would come in the subsequent period or subsequent contract? That is one.

And also whether this kind of enhanced rebate and charge can come relating to other products like Herceptin and all that?

[Shreehas Tambe, executive]

Yes. Let me respond to you, Surya, on this. I think what we had clarified even in the opening remarks and now, this is about the past. So there are legacy contracts that were signed in the past as Viatris is running the business today. And what we realized is that certain select customers in the managed care segment had been offered higher rebates. So this is for a business that is in the past. And those rebates are then passed on or discounts are passed on as they book the revenues. And those had to be reset.

What we've done now is we've reset these contracts. So going forward, that's why you will not see those things come in. And hence, we are saying that in the coming quarters, these things will get better. Big part of this has changed starting July 1, and hence, we are seeing this improve right away.

Does that clarify that part, Surya?

[Surya Patra, analyst]

Yes, certainly, sir, but it will not be related -- means we'll not see any kind of charge like this relating to other products?

[Shreehas Tambe, executive]

We are not aware of any charge at this point on any other product. This is related to pegfilgrastim and we've corrected that charge and reset those contracts. And going forward, we will be seeing those margins coming back to normal.

[Surya Patra, analyst]

Okay. Now just one -- another clarification I wanted to have. This -- when we talk about this market share for any product in the U.S., let's say. So, is it the total prescription that is really written or it is the prescription that is filled?

[Shreehas Tambe, executive]

Matt, do you want to respond to Surya's question?

[Matthew Erick, executive]

Yes. Sorry, Shreehas, I couldn't really understand the question. I apologize.

[Shreehas Tambe, executive]

Let me respond to that, Surya, a little bit and then see if, Matt, you want to add on. Surya, these are the market shares that are reported today for, say, glargine, since you asked about it, are market share between the branded and the unbranded products, we have proved them and that is at a little under 12% today, and that's what we're saying has grown. The new prescriptions are trending at around 15%. So that's a leading indicator of where things are going. And Kiran did mention in her opening remarks that we also have onboarded a large closed-door managed care customer. Those numbers don't get necessarily accounted for in the market shares that are reported. And we believe that's also a very strong indicator in terms of how our glargine will drive growth in the -- starting from the current quarter moving forward.

But Matt, if you want to add anything further to that?

[Matthew Erick, executive]

No, I think you covered it, Shreehas. And I apologize, I couldn't hear that question. Thank you.

[Surya Patra, analyst]

My question was, sir, so recent studies indicate that the prescription [ generator ] written for any product in the biosimilars are meaningfully different than the prescription filled by the patient actually. So that is why in terms of the market share when we are mentioning -- so is it based on prescription written or based on prescription filled?

[Matthew Erick, executive]

I think you're asking about what we can see as current prescriptions and then what's being written new? And if I'm hearing you right, so new prescriptions give you an indication for refills or continued prescriptions in the future. And I think what you're looking at is particularly in Semglee or insulin glargine, if you're looking at the IQVIA data, you're going to see the trends of the prescriptions that are being filled and then you can look at the new Rxs. Normally, the indication of new Rxs will give you a good read on how the trends of the prescriptions are going to continue to grow.

Now as Shreehas said, when we've won this large closed network in July, those do not report in IQVIA and that can vary your market share and understanding. But what we're seeing is growth not only in new Rxs but growth in our partners, which will be closed-doors networks as well as payers. So hopefully, that answers your question. If not, I will try again.

[Kiran Shaw, executive]

I think, Surya, to just simplify it, I think the 12% is the prescriptions filled and the NRxs are prescriptions written.

[Surya Patra, analyst]

Okay, okay. Sure ma'am.

[Kiran Shaw, executive]

15% is trending towards how much extra has been written and 12% is really indicating how much is filled.

[Surya Patra, analyst]

That is really helpful. My third question is relating to the integration thing what you mentioned in the opening remarks, ma'am, about the Viatris acquisition and its integration in the U.S., and that is likely to be completed by second quarter. So what practical changes that we mean by this? Because we know that the marketing arrangement is -- or the marketing support we are currently taking from the Viatris for the next kind of 1.5 years or so more. So this integration will bring what kind of a benefit, let's say, in U.S.?

[Kiran Shaw, executive]

So maybe, Shreehas, you would like to take that question?

[Shreehas Tambe, executive]

Yes. Thanks, Kiran. Thanks, Surya, as you know that we had signed up with Viatris for a 2-year transition services agreement and as you rightly said, the commercial team that Viatris had is a part of that deal that we had, which will be coming over from Viatris to us.

However, the reason we had signed up this 2-year transition services agreement is because there were functions that we needed to get ready outside of commercial, so that we can actually run a successful business in the U.S., and we had given ourselves a 2-year window to be ready with that infrastructure.

Today, we feel confident. Having moved over 70 markets in the emerging market space, we are feeling quite confident with the leadership that we have put in under Matt's leadership and the other leaders that we brought on board in the U.S. and in North America and Canada. So we believe that we're in a good place to move the business over to be led by Biocon Biologics by the end of this quarter. And we also have a very good alignment with the team that's coming over from Viatris to us. And that's why we believe that we can accelerate this transition, bringing greater focus to the business that will now be only focused on the biosimilars, which should then benefit what we are trying to achieve as a company.

[Saurabh Paliwal, executive]

We'll take the next question of Neha Manpuria from Bank of America.

[Neha Manpuria, analyst]

My first question is on -- I think in the presentation, you made a comment about core margins going back to the mid-30s by the end of FY '24. Based on your comment that the one-off that we saw in rebates is whatever, it should normalize, any reason for why we should see a more gradual improvement in core margins versus our full year guidance of mid-30 to high-30 margins?

[Kiran Shaw, executive]

Neha, I said before the end of the quarter -- I mean end of the fiscal, so I think we expect to see it sooner. But basically, I'm guiding for the fact that we have reset the rebates and hope that over the coming quarters, we get back to normalcy as, Shreehas, mentioned.

[Neha Manpuria, analyst]

Apologies, I was on mute. So ma'am, just to understand this clearly, we are still holding our mid-30s guidance for FY '24, with the core margin guidance that we've given for biosimilars?

[Kiran Shaw, executive]

Yes.

[Neha Manpuria, analyst]

Understood. And my second question is on Hulio. Shreehas, based on the contracts that have been announced so far and given that there's been a more gradual uptake in the entire adali biosimilar market, what's your sense on when we can get clarity on how payers think about allocating volumes? And then when would we get a better sense on what the opportunity could be for Biocon?

[Shreehas Tambe, executive]

Thanks, Neha, for that question. And as Matt answered earlier, the opportunity is very sizable. So the Humira opportunity in the U.S. is a very sizable opportunity. We believe that this decision-making will happen over the course of this calendar year. So we should have that clarity on how things will evolve.

There are commercial plans, commercial health plans, which would make a decision, which is about, I would say, a part of that business, a large part of the U.S. market. But outside of that, as Matt and Kiran in her opening remarks addressed, that there are several other pieces of the market, which would be the managed care market, the Medicare market. And I think basically, while these decisions will be made during the course of the year, you will see, and we've said this in the past as well, the business will track forward from '23, leading up to '24, and you will see most of these things really consolidate towards '25. I think this is what we've heard from all other industry players as well. And that opportunity remains intact.

And even from our perspective, we are very well positioned to realize that opportunity given the kind of product that we've developed, the success that we ride on in the back of what we've achieved in Europe and the kind of team that we've got, which is very well aligned to commercialized Hulio in the U.S. with the product and the patient service programs that we've got. So we feel quite confident, Neha, as the decisions get made over the course of the few months ahead of us.

[Neha Manpuria, analyst]

And in your assessment, Shreehas, what portion of the market -- of the commercial contracts that have been announced that we have seen -- I assume this would be for the next 12 months. And what portion of the market do you think is already locked in and probably not available for us?

[Shreehas Tambe, executive]

So there are 2 things that I want to draw your attention to, and I'll respond 2 things separately. One is if you look at the overall U.S. market need, the commercial space is roughly 50% between the large payers and then there are a bunch of other smaller players as well. What we have seen made public so far are 2 commercial payers, 2 large commercial payers who made announcements. And if you notice that announcement, they've said that they continue to look at these as an evolving thing. It's not like this is it and no one else will be looked at. So we don't see this as a definitive position. What we see is what is announced at this point is a set of players who have been enrolled on 2 health plans and we see most of the other things still evolving as we go around. So that's why the commentary that Kiran had, decisions are still gradual.

[Saurabh Paliwal, executive]

We'll take the next question from Shyam Srinivasan from Goldman Sachs.

[Shyam Srinivasan, analyst]

Just the first one on the sequential run rate for Biocon Biosimilar segment. How should we look at this as we go forward? We were expecting a faster ramp up. I know you talked about the reset in pegfilgrastim as well as the tender business change, but how should we look at it, see move through the quarters?

And a related question is just on some of the market shares that we had aspirations for, especially Semglee, both branded and unbranded. You talked about the fact that [ NCOs ] don't get added in, again, that, but in high teens market share that we were talking about earlier, is that something that still that we can certainly do? So that's the first set of questions.

[Kiran Shaw, executive]

So, Shyam, let me answer that by saying that yes, the $15 million impact that we've seen in the rebate on pegfilgrastim has also impacted our top line as it has impacted our core EBITDA and EBITDA as well. So it has basically run through our financials. So, yes, that is the reason why you have not seen an uptick in terms of increased market share.

The second thing is, of course, we are very encouraged and confident that our performance in the U.S. and many, many other markets is showing good growth, and we expect that to translate into both revenue and bottom line growth.

So that's what I would say at this point in time, but maybe, Shreehas, you'd like to add something.

[Shreehas Tambe, executive]

Sure. Thanks, Kiran. I think, Shyam, to your question. 2 things, I would say. One is maybe also partly responding to what Neha had said. If you were to look at that $15 million and if you add that back even in the current numbers, I think, like Kiran said, to the revenues and to the core EBITDA, the quality of earnings is already at that mid-30s. So the business that is trending today is already quite strong, both in terms of the revenues that we are looking at and in terms of the margin that it's tending towards.

I think where the aspect of the uptick is also expected is in the emerging market side, which, as you know, a large part of that business is dependent on tenders. And as Kiran also alluded to in her opening remarks, some of this is going to be different from quarter-to-quarter. And as you see those tenders realize and effect, you will see those move between quarters. But otherwise, the emerging markets business has done well, but the advanced market business has really been driving that growth, and we see that in place.

And your second question, which was related to Semglee, I think the closed-door managed care market, that customer, will certainly add a huge muscle to that number because that's a single supplier situation, which means there is no other competitor. And we are seeing a very high degree of conversion from the incumbent to us. So we expect to see that driving growth for us. We also see that driving market share.

And outside of this, Kiran also referred to another large commercial payer. So this is the managed care player, but there is also a large commercial player who signed us on. Some of this will sign up towards the beginning of calendar year '24, which will then drive growth for us in the last quarter of this fiscal, Shyam.

[Shyam Srinivasan, analyst]

Shreehas, is there a change to the market share guidance on Semglee? I think that's when I trying to arrive at.

[Shreehas Tambe, executive]

I think we're still tracking to that mid-teens that we have said, Shyam. I don't think we are moving from that just yet. There's no reason for us to do things differently.

[Shyam Srinivasan, analyst]

Got it. And just going back to the opening remarks on Hulio and the gradual progress and expectations have been -- or rather, actual has been slower than expectations on the ramp-up over '23, '24, '25. I just wanted to understand your experience in Europe. Some of the numbers that you're sharing for Germany or France are pretty good numbers. So do you think that is something that over time gets replicated in the U.S.? Or do you think time limits are very different? So that was my second question.

[Shreehas Tambe, executive]

Matt, would you like to respond on that?

[Matthew Erick, executive]

Yes. Yes. Well, thank you for recognizing Europe as being very strong, and I agree with you. What we're seeing there is good, strong, steady growth. And as we go through this integration, as Kiran talked about, and fully transitioning away from Viatris by the end of the year, I see that continue to grow because we are going to have that 100% focus, and we'll be able to drive additional adali built off of a great base of what we're already doing in Germany, in France and Belgium and then taking that and to expanding that focus into other European countries. So we are very optimistic around maintaining that strong steady growth in Europe and maintaining our lead positions within Europe, France and then gaining traction in other countries within the European Union.

[Shyam Srinivasan, analyst]

And last question is just that -- just on the Generics business, I think 15% growth. If you can just help us just aggregate that into what is happening in API versus formulation? There's been lots of commentary around the generic pricing improving. I think you, in your press release, talked about new contract wins. So help us walk through that, please.

[Shreehas Tambe, executive]

Sure, Shyam. So we've seen many new contracts come in the formulations business in the U.S. We have seen disruption in the U.S. coming from other generic players. And as a fully vertically integrated player, especially in the statins and immunosuppressants space, has led us to garner additional market share. I think when you track the IMS for some of the products that we have in the market, it's doing very well. We are getting closer to between 30% and 40% market share in the statins. And soon, we expect that we will be able to get additional market share for immunosuppressants.

And the bulk of the growth is from formulations. But as I mentioned that we've also seen a good traction of immunosuppressants API, which continues to be a focus area and a growth driver for us.

As far as the pricing is concerned, I think there are mixed trends. We've seen the pricing pressure taper down. We have seen prices stabilize over the last few months and we just hope that this trend continues and at least that way, we are able to grow sustainably.

[Shyam Srinivasan, analyst]

And just that data point, just the split of indexing for API and formulations?

[Shreehas Tambe, executive]

See our formulations business actually touched INR 200 crores this quarter, so out of INR 700 crores or INR 200 crores is formulation and a little over INR 400 crores is API and the remaining is other income.

[Saurabh Paliwal, executive]

We'll take the next question from [indiscernible] from Bernstein.

[Nithya Balasubramanian, analyst]

This is Nithya from Bernstein. A quick one on glargine. If you can indicate what is the incremental lives covered that you can now address with the new payer coverage wins that you have had?

[Matthew Erick, executive]

Did you say could we talk about the lives?

[Nithya Balasubramanian, analyst]

Yes, incremental lives that is now being covered with the new payer wins you have had in glargine?

[Matthew Erick, executive]

Yes. As far as these are confidential right now from the standpoint of these closed door in the large payer, I think what we continue to say is that it's really about the market share. Number of lives, because we've seen at one of the closed door, if you're familiar with them, they will do pretty close to 90%, 95% conversion. And as we get into the latter half of this year, or the last half of our quarter in FY '24, this is where the second payer will come on. And we're anticipating there, we will also be exclusive. So we will start seeing additional pull-through.

But the number of lives do vary. That's why I didn't answer it directly. It's really about the revenue and pull-through, and we are exclusive on both of those contracts. So you'll see that pull through over a period of time and the closed door will pull through already and continue to grow as we go forward. Not trying to dodge your question, just lives aren't particularly the indicator. It's really the pull-through with market share and are you exclusive on these contracts?

[Nithya Balasubramanian, analyst]

Got it. I think I'll wait for whatever you're comfortable talking about the payer.

[Matthew Erick, executive]

Thank you. Thank you very much.

[Nithya Balasubramanian, analyst]

On Hulio, if you can let us know what is the status of your interchangeability study? When are you filing it? When would we -- when should we expect an approval? BI should lose their exclusivity in July. So will you be ready by then?

[Shreehas Tambe, executive]

So I think, Nithya, thanks for that question. Let me respond to that. I think the interchangeability thing we are seeing is something that we will be -- we are working on that study. We should be in a position to give you more details about when we'll have it. We won't have it in July since you have a direct question there. But we will have that study in play. And as long as you have that information, together we believe it will work to our advantage.

[Nithya Balasubramanian, analyst]

Got it. One last one, if I may. On aflibercept, I understand there is a litigation that's ongoing between Biocon, Viatris and Regeneron. Early August was when the closing arguments are supposed to be read. Can you give us an understanding or understanding of when you're expecting the judgment to come through?

[Shreehas Tambe, executive]

So as you know, we are in an ongoing litigation on that. We feel as that is undergoing right now, there's not a specific date, which has been set out and wouldn't be fair to comment anything further on it, but to say that we remain quite confident, and we feel good about how things have progressed.

[Saurabh Paliwal, executive]

We'll take your next question from Tarang Agarwal from Old Bridge Capital.

[Tarang Agrawal, analyst]

Two questions from me. One, Chini, in terms of accounting, would there be any intersegment sale between the holdco and Biocon Biologics? If so, what would be the nature of these sales?

And second, if you could give us the business-wise CapEx outlook for FY '24 between Generics, Biologics and Syngene?

[M. Chinappa, executive]

Tarang, most of the sales of Biocon Biologics is to third parties. The INR 2,015 crores, largely third party, there's very little support services we provide to Biocon Limited or any of that approved companies.

On CapEx, I'll let Indranil take the group thing. But BBL's CapEx projections for the year is $150 million, largely for the Malaysia expansion as we're ramping up our insulin capacities.

[Indranil Sen, executive]

I'll take it for the generics and maybe, Sibaji, who can talk for Syngene. So generics, we will be seeing close to $100 million of CapEx for next year, between $80 million to $100 million.

[Sibaji Biswasb, executive]

Yes. Thanks, Indranil. And for Syngene, we'll be spending close to $85 million and close to $50 million of that will be research business, the rest of which will be development and manufacturing.

[Saurabh Paliwal, executive]

We will take the next question from Yash Tanna from iThought Advisory.

[Yash Tanna, analyst]

My first question was on Biocon Biologics. So if I see the capital employed, it has grown at a much -- for the last 2, 3 years, grown at a much faster rate versus the profitability, which has led to ROCs coming down from the BBL business. So my question is, in the next 2 to 3 years, do we expect this trend to sort of reverse? Because I believe we are largely done with our expansions and acquisitions, and profitability going ahead should support return ratios.

[Kiran Shaw, executive]

Yes, that is the intent, and that is what we are working towards.

[Yash Tanna, analyst]

Right. And do we have a target number in mind, ma'am, for the next, let's say, 3 years down the line or we have our internal benchmarks set for the business?

[Kiran Shaw, executive]

So you do know that we are in -- we are in the midst of the capacity expansion in Malaysia and, as you know, the sort of payback on that will happen once it's commissioned. And as you know, all these CapEx projects in the Biologics business, is a multiyear kind of commissioning process. And so obviously, you -- we will start seeing the ROC reflected at a much healthier level probably in about in FY -- in fiscal year -- at the end of this fiscal year FY '25 and beyond.

[Yash Tanna, analyst]

Got it. That's helpful. On the insulin side, I believe since we are in a position now to offer higher rebates to the pharmacy [ defect ] managers, have you seen any impact benefit of that? Because the -- the other innovator companies have reduced the prices, right?

[Kiran Shaw, executive]

I've not understood your question, but maybe, Shreehas, if you understood it, you could answer it.

[Shreehas Tambe, executive]

Yes. No, I think what Yash is referring to is the high WACC and the low WACC dual pricing strategy offers us the opportunity to do that. I'll let Matt respond to it and then if there's anything more, I'll come back.

Matt, would you want to respond to Yash's question?

[Matthew Erick, executive]

Yes. Yes, sure. So look, it is a -- like I said before, it's a mix play with the rebates. And look, I just want to say this before we start on just the economics. I mean we do provide additional value with our products like Semglee or insulin glargine, but we will remain competitive.

But the rebates between the high and low based on payer contracts can vary. So as we look at the mix, it's very important how we consider when we did this process, what's of the branded Semglee and what's of the low WACC insulin glargine. We do see variations and these variations are by payer or PBM or by customer. So what I would say from a standpoint, we are in good COGS position to maintain and compete with competitors.

And also to point out and lastly, to remember, the WACC piece is just the list price. It's not the net. And so when you see these WACCs lowering, there's all kinds of things that can go into this. But in closing, Biocon Biologics maintains a good cost position, and this is why you're seeing that maintain growth and the growth of that profitability.

[Yash Tanna, analyst]

Right. That's helpful. Finally, on the debt side, is there any target number we want to reach by the end of the financial year '24?

[Kiran Shaw, executive]

So we are basically looking at our debt covenants and seeing how we can basically align with that, and we will raise funds accordingly.

[Yash Tanna, analyst]

Sure.

[Saurabh Paliwal, executive]

We'll take the next question from Masira Vasanwala from FSSA Investment Advisors.

[Masira Vasanwala, analyst]

I wanted to ask a question on the facility inspections in the Biosimilars business. So just...

[Kiran Shaw, executive]

Masira, we can't hear you properly. Can you repeat it?

[Masira Vasanwala, analyst]

Yes, I'll come closer to the mic. I wanted to ask about the facility inspection in the Biosimilars business. Just maybe could you help us understand why we're having another round of observations in Malaysia? Do we need to make more investments in people, the processes, et cetera? And then yes, just how are you thinking about this?

[Kiran Shaw, executive]

Yes. So maybe I'll get our quality head, Michael Cutter, to answer this question.

[Michael Cutter, executive]

Yes. Thank you very much, Kiran. So yes. Thank you very much for this question. I think it's a very important question, and I'm sure many people have this. So the inspection that we had was -- in Malaysia was a routine inspection. We have had our previous inspection some 3 years ago. And we had some observations, 6 observations for the drugs substance, the drug product and the laboratory. So it covered that as a scope. And we had 2 observations for devices. So there were 2 parts to the inspection.

The nature of these observations were not systemic. There was no data integrity. And I think the way that I would characterize these as -- these observations, were they were really demonstrating that we are making good progress in this facility. So there were no -- there were no upgrades to the facility. In any case, we have the expansion project going on there, which is current thinking with the best practices in the industry. So there are no infrastructure changes that we needed to make out of this. These were mostly procedural. They were training of some of our support people. This was the nature of the inspection observations.

So to that extent, there was nothing that we intended to do in terms of structural modification to the facility. Does that answer the question okay?

[Masira Vasanwala, analyst]

Yes. I mean, the fact that our launches are getting delayed because we're still waiting for the approvals of these facilities, is there more that needs to be done to sort of accelerate that?

[Kiran Shaw, executive]

So let me answer that question, Masira. We have actually provided a CAPA plan, which has been accepted for those launch approvals. And of course, there are 2 approvals, as you know. One is for insulin aspart and the other is for this -- I mean the other one is for bevacizumab. The insulin aspart CAPA plan has already been accepted by U.S. FDA, and we're hoping that, that is adequate, but we remain engaged to make sure that this is our understanding.

The second thing is, of course, as far as the bevacizumab approval is concerned, that is in India, and that also, the CAPA has been given -- the CRL response is also about to be given. So hopefully, that should also get resolved hopefully very, very soon.

But beyond that, we can't really predict when it will happen. It's up to U.S. FDA to really look at what we have provided them. We are hoping that the inspection in Malaysia will also further strengthen that any concerns they have about approving aspart. So that's as best as we can hope for.

[Michael Cutter, executive]

Thank you for that, Kiran. I think it summed it up very well. Masira, is that okay for you?

[Masira Vasanwala, analyst]

Yes, that answers my question. And just one more question. What is our net debt today as of the latest quarter?

[Kiran Shaw, executive]

For the full company, Siddharth?

[Indranil Sen, executive]

Can I answer that?

[Kiran Shaw, executive]

Yes, please.

[Indranil Sen, executive]

Yes, please go ahead.

[Siddharth Mittal, executive]

Yes. So excluding the structured investments, we are at $1.2 billion net debt.

[Saurabh Paliwal, executive]

We'll take the next question from Cyndrella Carvalho from JM Financial.

[Cyndrella Carvalho, analyst]

Just a little more clarification on aspart and bevacizumab approval. Beva, you mentioned that we got a CRL. Was it related with the plant only that we are responding? Can you just clarify?

[Kiran Shaw, executive]

Yes.

[Shreehas Tambe, executive]

Yes.

[Kiran Shaw, executive]

It was actually because of the facility in Bangalore. There were some observations. We have basically provided a CAPA plan and a CRL response. So that's what I was referring to.

[Cyndrella Carvalho, analyst]

Okay. And in terms of our beva approval, do you see anything pending from our end apart from the facility?

[Kiran Shaw, executive]

So there's never been ever any scientific concerns about any of our programs. So as far as CMC and others are concerned, there's never been a question.

In recent times, the only observations we've had in a pre-approval inspection is according -- is pertaining to the facilities, and that's what we've been addressing.

[Cyndrella Carvalho, analyst]

Yes. And on the aspart approval, do you think we wouldn't require a PAI sort of inspection again followed? Or in your mind, it's not necessary? Because in my mind, it's not necessary, but I just want to clarify the same from you.

[Kiran Shaw, executive]

Well, that's what we also hope.

[Cyndrella Carvalho, analyst]

Yes. That's really helpful. And just to, Siddharth, how do we see the generic growth given that you alluded to pricing being more stable in U.S.? How should we expect our overall growth trajectory from the Generics side of our business?

[Siddharth Mittal, executive]

I mean we guided for a mid-teen growth this fiscal. We would, of course, see a better second half because some of our facilities which were commissioned last year, and we are kind of doing the validation at this date, time and we expect additional supplies to start from these facilities. And these were brownfield capacity expansion so does not necessarily need FDA to come and inspect as compared to the new greenfield facilities, which requires inspection and adds more time for commercialization.

And we also are looking at locking in additional business in the U.S. on our formulation side and launching a few new products as we go along. We have already got a few approvals. And I think this quarter itself, we have 2 new launches that are there.

[Cyndrella Carvalho, analyst]

So should we look for closer to a double-digit growth rather than the mid-teens? Like a higher double-digit growth? Is that...

[Siddharth Mittal, executive]

That's what we hope for, quite honestly, is higher teens, I mean, the higher double digit, but the visibility that we have as we stand in the fifth month of the fiscal, I think I'm confident on the mid-teens, but of course, we would see what we can do to get to the higher double digit.

[Saurabh Paliwal, executive]

We'll take next question from with Vishal Manchanda from Systematix.

[Vishal Manchanda, analyst]

So my question is on the Generics business. On the peptide facility that's going to come up in the first half, can you guide how many filings we have on the peptide front? And is possible the total market that we are addressing through these filings?

[Siddharth Mittal, executive]

So we have around 15 peptides at various stages of development, of which we have already filed Liraglutide in the U.S., Europe and many other markets, both the strengths, Victoza and Saxenda, and they are being reviewed by FDA as well as the European Agency. And we are -- if you look at the overall peptides opportunity, even though these 15 molecules are addressing diabetes and weight loss and other indications, but just the weight loss and diabetes management market size is expected to be over $100 billion in the next 10 years or so. So we definitely see this being a huge, huge growth driver for the Generics business over the next decade or so.

[Vishal Manchanda, analyst]

So the other filings will follow up. So Liraglutide is done and the others will follow from there?

[Siddharth Mittal, executive]

Yes. That's right.

[Vishal Manchanda, analyst]

Okay. And second, on the immunosuppressant facility, could you guide on the peak sales potential and the investments made there -- and the facility at Vizag?

[Siddharth Mittal, executive]

See, we have invested close to INR 600 crores in that facility. And we already have a significant capacity in Bangalore, so this was an add-on facility, and we would be looking at locking in more customers, mainly in the emerging markets, where we also see a huge opportunity. But since our capacities were logged in primarily for U.S. and few large markets, we were not able to address these opportunities. And we definitely think that we'll have a much bigger market share in markets like even China, where we are looking at playing -- addressing that market in the years to come.

But in terms of revenue guidance, I think it will be difficult to give right now because we'll, of course, be selling both the API as well as the formulations, which will be commercializing in these emerging markets.

[Vishal Manchanda, analyst]

So the Vizag facility also houses a formulation facility?

[Siddharth Mittal, executive]

No, the formulations would be done in Bangalore. So we have only 1 formulations facility for potent molecules.

[Vishal Manchanda, analyst]

So if you could just give a guide on the peak sales for the Vizag facility, the API business?

[Siddharth Mittal, executive]

That's what I said. It will be a little premature to give that. I think we expect the revenues to commence sometime in calendar -- second half of calendar '24 and we are, of course, in discussions with customers to lock in and even with regulators where we are going to file from this facility. And I think we'll have a better sense, I would say some time next year in terms of the sales. We, of course, have internal numbers, which I don't want to communicate at this stage.

[Vishal Manchanda, analyst]

Final one on aflibercept, whether we are seeking entire changeability of the product?

[Siddharth Mittal, executive]

Yes. Vishal, the aflibercept product will -- we will be looking forward to that interchangable.

[Vishal Manchanda, analyst]

Right. And if interchangeability is granted, you might also be eligible for an exclusivity there?

[Siddharth Mittal, executive]

Sorry, I didn't understand the question, Vishal.

[Vishal Manchanda, analyst]

So will you also be eligible for an exclusivity on aflibercept considering that you are first to file? And…

[Siddharth Mittal, executive]

So we are -- under the regulatory interchangeability guidance itself, the first interchangeable product has an exclusivity of 1 year since that launch. So you will have that -- as an interchangeable product, you will have an exclusivity to claim interchangeability.

[Saurabh Paliwal, executive]

The next question is from Nitin Agarwal from DAM Capital.

[Nitin Agarwal, analyst]

Siddharth, on the Generics business, there are significant investments that you're meeting in the plants as well as in the R&D. Now we're talking about 15% growth for this year from a growth revenue perspective. But if you can just do some sort of crystal gazing on where -- I mean, how do you see the business over the next 3 to 5 years with the kind of investments you're making? And what are we -- what's the big picture story on the Generic business given the fact that we started out in this business fairly late versus maybe all the other peers?

[Siddharth Mittal, executive]

So let me answer your later question first before I come to your second question. So I think in terms of the overall big picture, for the years to come, we continue to invest in our fermentation, which has been our core and what we been doing as a differentiated offering for more than 2 decades, and we are building on to our portfolio in fermentation. So that would continue to be one of our focus areas.

The second is peptides. I think the opportunity that peptides offer, I have mentioned sometime back that over the next 10 years, we look at almost $200 billion addressable market. And again, this has been -- while many companies are attempting peptides, I think this is really about science, cutting-edge science, and we think that the capabilities and the experience that we have had in developing molecules like peptides, we do have a good head start, and we'll be able to play in this area very competitively in the years to come.

And of course, we are looking at injectables as one of the focus areas where we would continue to forward integrate some of these peptides as well as the fermentation-based APIs into injectables and offer thereby continuity of supplies for vertical integration to our customers.

And we will, of course, continue to invest in our synthetic pipeline, both onco as well as non-onco because whether it's in the statins basket, we -- you'll see us -- I mean you know that we have a leadership position in the statins globally, both in the API and now in formulations in the U.S. And we would continue to invest selectively also in the synthetic area.

Now combining all the core strategies, which I mentioned, we -- over a period of next 4 to 5 years, on a CAGR basis, I definitely expect a high double-digit growth. So somewhere between, let's say, 17%, 18% to 20% kind of growth over a period of 5 years.

[Nitin Agarwal, analyst]

And, Siddharth, on fermentation of the bio -- on the business challenge, I understand. But on fermentation, barring [indiscernible], are there any large subsegments we're focusing on it, that can become bigger going forward?

[Siddharth Mittal, executive]

See, there are 2 ways to look at it. In the existing capabilities that we have, we have not really worked on any new molecules over the last few years. And then we are working on a handful of molecules. I mean let me remind you that fermentation universe is not very, very large. So there's still a limited number of molecules. So some of the important molecules which we did not previously develop, we are working on it now.

The second aspect is we are also looking at other areas of fermentation like [ potent ] fermentation, which we have never done in the past. There are -- there's prescription fermentation. So there are other areas of fermentation where we can expand, and we are evaluating where else can we -- what else can we do, including things like microbial fermentation.

[Nitin Agarwal, analyst]

Right. And last one from an inflection perspective, at what stage do you see the profitability inflection in the business?

[Siddharth Mittal, executive]

I think -- I mean, of course, when I dissect our existing business, our fermentation business is quite profitable. But of course, it's been cannibalized by the synthetic products, which have been under pressure for last few years.

Now from an inflection point, when we -- I think the margin expansion should happen again from peptides, both API as well as formulations, and majority of the profits are going to be driven by few molecules. And I think COPAXONE, glatiramer acetate, is one drug, which we have -- which we are hoping that we'll be able to get the approval soon. And of course, the Liraglutides and all of these blockbuster launches are going to drive the profitability to higher levels.

[Nitin Agarwal, analyst]

And last one, and what is with the [indiscernible] which is there on the Generics business ex U.S.? Or what's sitting in Biologics?

[Siddharth Mittal, executive]

Well, Generics business is cash positive. I think it's almost INR 1,100 crores, INR 1,200 crores of cash. Actually, it's almost INR 1,000 crores, and there will be some dividend paid out immediately after the AGM, but we'll still have a INR 700 crores, INR 800 crores of cash in the system.

[Nitin Agarwal, analyst]

And just, Chini, on Biologics, what would be the net debt secured right now?

[M. Chinappa, executive]

It's just above $1.4 billion net.

[Nitin Agarwal, analyst]

And this is taking the structured debt as equity or what [indiscernible]?

[M. Chinappa, executive]

Excluding structured debt. This is the bank debt that we talk about.

[Nitin Agarwal, analyst]

And earlier, you mentioned something about the covenants. So do the covenant will require any specific fund infusion during the year or next?

[Unknown Executive]

It will calibrate it.

[Saurabh Paliwal, executive]

We'll take the next question from Ishita Jain from Ashika Stockbroking.

[Ishita Jain, analyst]

My question is on semaglutide specifically? Novo Nordisk in their earnings commentary mentioned shortage in the molecule and the demand is pretty strong. So is that a CMO opportunity for us in semaglutide?

[Siddharth Mittal, executive]

Well, that's for, of course, Novo to decide if they want a CMO. There have been already a couple of filers in the U.S. So we were not amongst the first to file for semaglutide. We have it under development and we, of course, expect that we'll be on the 180s one a day for semaglutide. But at this stage, honestly, we have not explored being a CMO because typically, you know that when these innovators look at CMOs, they don't look at competitors.

So since we do have a product -- a generic product under development, then it's unlikely that they will pick any generic player for -- as a CMO. I mean if at all, then they will bar a generic company to launch their own drug. So I mean Novo is already working with pure player CDMOs or CMOs to manufacture semaglutide and I think that's what would be more apt for them rather than looking at a generic company.

[Ishita Jain, analyst]

Got it. And can you talk about the strengths we have for semaglutide that we will be filing for?

[Siddharth Mittal, executive]

Well, I think it's the science, as I mentioned, that these are complex peptides to develop, characterize. These molecules does require a lot of understanding of these molecules in the amino acids and how you kind of link them and synthesize these molecules, and that's the science.

[Kiran Shaw, executive]

She was asking about the strength. So I think we will develop both strengths --

[Siddharth Mittal, executive]

Oh sorry.

[Kiran Shaw, executive]

For weight loss and the diabetes.

[Siddharth Mittal, executive]

Okay. I mean, there are 3 formulations for semaglutide: Wegovy, the Ozempic and the Rybelsus novel, so we'll be developing all 3.

[Saurabh Paliwal, executive]

The next question is again from Nithya from Bernstein, a follow-up.

[Nithya Balasubramanian, analyst]

This is again on semaglutide. So semaglutide, the registered process is a recombinant process. But if you look at during discovery, it was actually done using a synthetic process. And I can fully imagine players trying to figure out a synthetic process because your COGS and operating efficiency is much better. So do you see that as a threat to your cost position?

And a broader related question, which is that if I look at tirzepatide, I think it's a synthetic process. I know there are a lot, many more peptides in the pipeline, but do you eventually see synthetic routes of synthesis being figured out for most of these, and therefore, your fermentation capacity is not really have a long-term growth potential? How do you think about it?

[Kiran Shaw, executive]

Contrary to your perception, actually, recombinant processes are more effective and cheaper to produce. I think the big question there is the clinical trials that might be needed to establish the immunogenic similarity. I think that's why people prefer to go down the synthetic route. But we have capabilities in both and we will basically, closer to the time line, decide how do we approach this particular opportunity.

[Siddharth Mittal, executive]

So we will have both the product, synthetic as well as recombinant. And I think that's what will be the differentiator compared to other competitors who mostly have only synthetic product. And the regulatory part today, especially in the U.S., is more driving towards the synthetic than towards recombinant. And as Kiran mentioned, when you -- if that's a recombinant product, then you need extensive Phase I, Phase III kind of trials.

[Kiran Shaw, executive]

Or at least Phase I.

[Siddharth Mittal, executive]

Phase I then. And COGS, I think Kiran already mentioned that fermentation is lower than synthetic, but when you look at the overall cost of the product, it's not a big differentiator on cost because majority of the cost comes from devices and drug product filling than the old, from the API load.

[Saurabh Paliwal, executive]

We'll take the next question from [ Syed Priyanker from Exfir ].

[Unknown Analyst]

I would like to ask about [ SR2 ] and what were the key points presented in the closing arguments of the BPCIA patent dance case between Mylan product and Regeneron and how might these arguments impact the approval and launch of the [ SR3 ].

[Siddharth Mittal, executive]

So let me respond to that question. See, this is -- there are things on the argument that I won't comment on, which is in the litigation. But I will tell you that this has been a very different litigation in terms of an expedited request that was made where we are litigating on a number of patents which are limited. And we will look to see how the interim judgment comes through. As I've responded earlier, there is a guidance date, but we don't know exactly how that will play through.

Now as regards to whether it has an implication on the approval, the answer to that is only for the final approval. The approvability through a conditional approval like we talked and Kiran referred to in her opening remarks, where Health Canada is already approved conditional to the outcome of the litigation or the loss of exclusivity, basically. So that is where it does not affect.

You've also seen the European authorities recommend the [indiscernible] for approval. And NOW we're looking forward to the FDA do the same. So we look at that conditional approval subject to LOE.

[Saurabh Paliwal, executive]

Ladies and gentlemen, that's the last question for today's call. Thank you for joining us today. If you have any further questions or need clarifications, please do get in touch with us.

With this, we'll conclude and have a wonderful rest of the day. Thank you.

[Kiran Shaw, executive]

Thank you.