Biocon Ltd

NSE:BIOCON

Earnings Call Analysis

Biocon Q1 FY25 Earnings: Strong Revenue Growth, Strategic Milestones, and Future Outlook

Biocon reported a robust financial performance in the first quarter of FY25, with total revenue up 30% year-on-year to INR 4,567 crore, and EBITDA up 117%. This growth was greatly influenced by the Eris Lifesciences business transfer. The Biosimilars segment saw an 11% rise in operating revenue, offsetting declines in the Generics and Research Services segments. Although the quarter was in line with expectations, future growth is anticipated through continued biosimilar traction and new generic formulations. Strategic agreements and regulatory milestones underline a positive outlook for the second half of the fiscal year.

Strong Financial Performance Driven by Strategic Business Moves

The company's financial performance in the first quarter of fiscal year '25 was impressive, with total revenues increasing by 30% year-on-year, reaching INR 4,567 crores. This significant growth was primarily driven by a strategic business transfer agreement with Eris Lifesciences, which contributed INR 1,057 crores as other income. Adjusting for this one-time gain, the underlying revenue from operations was INR 3,433 crores, remaining flat compared to the previous year.【4:0†source】.

Mixed Performance Across Business Segments

The company's different business segments had varied performances. Biosimilars led the way with an 11% growth in operating revenues, offsetting declines in the Generics and Research Services segments, which saw 6% and 2% drops, respectively. Group core EBITDA stood at INR 903 crores, representing a 26% margin, but showed a 4% decline year-on-year due to slower growth in some business areas.【4:0†source】.

Quarterly Financial Highlights and Investments

Reported EBITDA for the quarter surged by 117% year-on-year to INR 1,755 crores, benefitting greatly from the Eris transaction. However, the adjusted EBITDA was INR 698 crores with a 20% margin. The company continues to invest in its future, with R&D expenditures amounting to INR 228 crores, representing 9% of revenues (excluding Syngene). Profit before tax (PBT) shot up over 500% year-on-year to INR 1,114 crores, though adjusting for the Eris deal, it was INR 57 crores.【4:0†source】【4:0†source】.

Generics Segment Facing Challenges

The Generics segment faced headwinds, with revenues declining by 6% year-on-year to INR 659 crores. The core EBITDA for this segment was INR 123 crores, reflecting an 18% margin, affected by lower sales and price erosion. Despite this, the company increased its R&D investments by INR 10 crores to strengthen its peptide and injectable portfolios.【4:0†source】.

Biosimilars Segment: A Bright Spot

The Biosimilars business delivered a robust performance with an 11% growth in operating revenues to INR 2,083 crores. This segment achieved a core EBITDA of INR 614 crores with a 30% margin, showcasing strong underlying profitability. Key products like Pegfilgrastim and Trastuzumab held significant market shares in the U.S., supported by strategic market access agreements and positive physician outreach. The company also expects future growth from newly launched products and expanded offerings in various global markets.【4:0†source】【4:0†source】【4:0†source】.

Regulatory and Market Developments

The company made strides in regulatory approvals, receiving endorsement from the U.S. FDA, EMA, and TGA for various facilities and products. Notably, the FDA approved Yesafili, their biosimilar Aflibercept, marking entry into the ophthalmology market. Additionally, the company is progressing with its regulatory filings for biosimilar Denosumab, further solidifying its future pipeline.【4:0†source】【4:0†source】.

Outlook and Future Expectations

The company expects the trends observed in the first quarter to persist into the second quarter, with a transition to accelerated growth anticipated in the second half of the fiscal year. This growth will likely be driven by continued success in the Biosimilars segment, new product launches in Generics, and Syngene's ability to capitalize on improved U.S. Biotech funding trends. Overall, despite a flat quarter one at the group level, strategic investments and regulatory wins position the company for future growth.【4:0†source】【4:0†source】.

Debt and Financial Health

The company's financial health remains stable, with net debt at the consolidated level around $1.1 billion. The management is actively exploring avenues to optimize repayment timelines and interest rates. Previously, the company has reduced acquisition debt by $250 million, indicating its commitment to managing and reducing overall debt levels continuously.【4:0†source】【4:0†source】.

Earnings Call Transcript 2025-Q1

[Saurabh Paliwal, executive]

Good morning, everyone. I'm Saurabh Paliwal from Biocon Investor Relations team, and I would like to welcome you to Biocon's Earnings Call for the first quarter of fiscal year '25. [Operator Instructions] Please note that the chat box is disabled, but you can raise any technical issues by sending us an e-mail at [e-mail].

I'd like to bring to your notice that this conference call is being recorded. A recording will be made available on the website within a day, and the transcript will be made available subsequently.

Moving to discuss the company's business performance and outlook for -- during this quarter, we have on this call, our Group CEO, Mr. Peter Bains; Siddharth Mittal, CEO and MD of Biocon Limited; Mr. Shreehas Tambe, CEO and MD of Biocon Biologics Limited, along with other senior management colleagues across our business segments.

Before we begin, I want to remind everyone about the safe harbor related to today's investor call. Comments made during the 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 any further information or clarifications, please reach out to the investor relations team.

With that, I would like to turn the call over to our Group CEO, Mr. Peter Bains, for his opening remarks. Over to you, Peter.

[Peter Bains, executive]

Thank you, Saurabh, and good morning, everyone. Before presenting the results in detail, I'd like to start with some opening remarks. As you will see in here, on a reported basis, the comparable or year-on-year first quarter group financial performance has come in very strongly, with total revenue up 30%, EBITDA up 117%, and PBT up over 500%. This performance has been driven by the impact of the Eris Lifesciences business transfer consummated in the quarter. After adjusting for the Eris transaction, underlying group financial performance, while relatively subdued, has come in, in line with our expectations on our previous guidance. And this is reflecting a mix of headwinds and tailwinds across our businesses. The highlight was the Biosimilars business, which has delivered a strong like-for-like operating revenue growth, which has offset degrowth in the Generics business and in Syngene. In light with our previous guidance, we expect the quarter 1 trends to continue into quarter 2 before we see a transition toward accelerating growth across the businesses through the second half of the fiscal year and into next year.

I will now move on to present the financial highlights for the quarter. At the group level, total revenue was INR 4,567 crores, a growth of 30% year-on-year and 15% on a sequential basis. As I've said, this included proceeds amounting to INR 1,057 crores from the strategic business transfer agreement with Eris Lifesciences, which is classified as other income. Revenue from operations, which excludes income from the Eris transaction was INR 3,433 crores, largely flat as compared to last year. As I've just said, this reflects a balance of performance across the segments where Biosimilars revenue from operations grew 11% on a like-for-like basis while Research Services and Generics saw declines of 2% and 6%, respectively.

Group core EBITDA for the quarter stood at INR 903 crores, down 4% year-on-year and representing a core operating margin of 26%.

Quarterly R&D investment spend stood at INR 228 crores corresponding to 9% of revenues, excluding Syngene.

Reported EBITDA for the quarter stood at INR 1,755 crores, up 117% year-on-year with a margin of 38%. Adjusting for the income from the Eris transaction, EBITDA for the quarter was INR 698 crores with an EBITDA margin of 20%.

Profit before tax and exceptional items stood at INR 1,114 crores versus INR 184 crores last year. And adjusted for the Eris transaction flow through, PBT for the quarter stands at INR 57 crores.

Net profit that was reported for the quarter was INR 660 crore while adjusted net profit stands at INR 19 crores.

Let me now turn to the business segment highlights and start with Generics. Revenue from operations in Generics was INR 659 crores, a degrowth of 6% year-on-year. Core EBITDA for the quarter was INR 123 crores with a margin of 18%. And R&D spend at INR 64 crores and representing 10% of segment revenues, was up by INR 10 crores in the same period last year, reflecting our continued investment in our strategic peptide and injectable portfolios. EBITDA for the quarter stood at INR 59 crores with a margin of 9%, reflecting lower sales, price erosion and the increase in R&D investments seen during the quarter. Profit before tax stood at INR 17 crores, with a PBT margin of 3%. Overall, while the performance for the quarter was muted, it was in line with our expectations, reflecting the anticipated pricing and demand challenges across our API and formulations-based business.

Moving now to look at the business updates, let me start with business development. And here, our preparations for entry into the GLP market opportunities are continuing to build momentum, and we were very pleased to sign an exclusive licensing and supply agreement with Handok, a leading specialty pharmaceutical company in South Korea for the commercialization of our Synthetic Liraglutide for the treatment of chronic weight management. This is consistent with our commercial strategy of expanding our global footprint beyond our direct presence in the United States into other important geographies, including the U.K., Europe, Latin America, Asia and Australia. Either through direct presence, we're working with strong local strategic partners.

On the regulatory front, there has been significant activity and progress. With 17 market filings, including 2 ANDAs in the United States, and we have received 3 approvals including our first generic injectable drug product approval for Micafungin in the United States. In June, the U.S. FDA conducted GMP and PAI inspections at 2 of our API facilities, Site 5 and the new Site 6, both located in Vizag. These inspections resulted in the FDA citing 4 and 3 observations, respectively, which were procedural in nature. The company responded to the agency's observations within the stipulated time lines for both inspections, and I'm very happy to report that earlier this week, the FDA issued an establishment inspection report for Site 5 and classify the inspection as VAI or Voluntary Action Indicated. We now await agency feedback for Site 6. In June, the Brazilian Health Agency, ANVISA, conducted a regulatory audit of our oral solid dose facility in Bengaluru, which concluded with no major or critical observations.

Looking ahead for the Generics business and consistent with previous guidance, we expect the second quarter to continue to be relatively muted with performance then building in the second half of the fiscal led by new generic formulation launches across multiple markets. Importantly, this includes the launch of our Liraglutide formulations for diabetes and obesity, both in the U.K. and in other markets where preparations are well underway. Our extensive GLP portfolio led by Liraglutide will be the major growth driver for generics in the coming years and has strong synergies and complementarity with our global insulin business in our Biosimilars vertical, providing Biocon a unique positioning in addressing the strategic diabetes and obesity global market opportunities ahead.

Let me now move on to our Biosimilars vertical. While our focus in fiscal '24 was ensuring business continuity and preserving value during the transition phase post-acquisition, our focus in FY '25 has now shifted to consolidation and leverage of our unique vertically integrated model to drive profitable growth. And I'm pleased to say we began the year on a positive note with a robust 11% like-for-like growth in Q1, and achieved several key regulatory milestones.

In the United States, we continue to see strong demand across our product range in our oncology franchise, Fulphila, our biosimilar Pegfilgrastim and Ogivri, our biosimilar Trastuzumab, continue to hold strong market shares of 20% and 19%, respectively, with several market access agreements coming into effect and increased pull-through at the physician level from our marketing team. Our assembly and insulin Glargine franchise serving the diabetes market segment also holds mid-teens shares on the back of strong formulary coverage, including a large managed care network. The U.S. insulin landscape continues to evolve dynamically, and we believe we are very well positioned with our extensive heritage and expertise in insulins to exploit and capitalize on the emerging opportunities.

In Europe, our market shares have remained stable at the regional level with some strong performances in several key markets. Hulio, our biosimilar Adalimumab is the market leader in Germany. And on the oncology front, our Ogivri, Fulphila and Abevmy, biosimilar Bevacizumab products have captured double-digit market shares in key markets such as France and Italy. We are also making good progress on our business expansion strategy in Europe with new launches and tender wins at national and hospital level in markets such as the United Kingdom and Italy.

Our emerging markets business reported a strong performance on the back of higher sales of our biosimilar Bevacizumab, recombinant insulin and Etanercept. During the quarter, we expanded the depth and breadth of our reach through 12 new product market launches.

Now coming to the financials for the first quarter of fiscal '25, Biosimilars revenue from operations was INR 2,083 crore, up 11% on a like-for-like basis, adjusting for revenues in Q1 fiscal '24 from the branded formulations unit in India. Revenue from operations does not include the income from the Eris agreement, which is booked as other income. This growth translated into a core EBITDA of INR 614 crore with a margin of 30% and an EBITDA of INR 474 crore or 23%, reflecting the strong underlying profitability of the core business. We continue to invest in our pipeline with R&D spends at 8% of revenue to drive the mid- and long-term growth of the business. Profit before tax is INR 1,065 crores, including the gain from the Eris agreement.

Moving on to regulatory updates, there have been significant activity and progress. The U.S. FDA-approved Yesafili, our biosimilar Aflibercept as the first interchangeable biosimilar, which marks our entry into ophthalmology, a new and exciting therapeutic area. Our biosimilar Denosumab global clinical trial has met the required endpoints, and we are currently on track to submit regulatory filings later this year.

The European Medicines Agency has renewed its good manufacturing practice GMP certificates of compliance for both our Bengaluru and Malaysia sites. We have also received EMA approval to manufacture our biosimilar Bevacizumab at our new monoclonal antibodies Drug Substance facility in Bengaluru. The same facility has also received GMP certification from the Therapeutic Goods Administration, TGA, the regulator in Australia.

The U.S. FDA recently concluded a combined GMP and pre-licensing inspection at our facilities at Biocon Park Bengaluru, between July 24 and the end of the month, spanning 6 manufacturing units and the associated quality labs and warehouses. The 10 observations noted in the Form 483 were procedural in nature. There were no observations related to data integrity or on quality oversight at any of the facilities and no repeat observations were noted by the agency during inspections. We will submit a comprehensive, corrective and preventative action plan to the agency within the stipulated time frame, and are confident of addressing these observations expeditiously. We do not expect the outcome of these inspections to impact the supplies of our commercial products.

Finally, coming to Syngene. In Syngene, we saw revenue from operations for the quarter down marginally over last year at 600 -- sorry, at INR 790 crores. Reported EBITDA was down 20% to INR 188 crores with an EBITDA margin at 23%. Profit before tax at INR 69 crore was down 44% from last year. Overall, Syngene's first quarter performance is in line with its guidance and commentary given in its Q4 fiscal results presentation.

The Dedicated Centers reported steady performance while there were continued growth momentum in Biologics Manufacturing, driven by both commercial as well as clinical scale projects. Performance in Discovery Services was impacted by the dip we've seen in U.S. Biotech funding that has impacted the sector over the last 2 years. However, it's clear that green shoots are now on the horizon as the value of funding to U.S. biotech saw remarked increase in the first half of calendar 2024, which will generally flow into outsourcing demand with a lag of a few quarters. Requests for proposals are up 50% year-on-year with the first quarter of fiscal '25 being the best first quarter for RFPs for Syngene in 4 years.

This quarter also saw the start of several pilot projects from pharma companies. Successful delivery of these projects is expected to build a foundation for larger scale future collaborations, and Syngene expects to win its fair share of these pilot projects.

Increased visits by companies exploring outsourcing options beyond China, add to the positive future outlook and provides long-term tailwinds for Syngene.

The repurposing of the Biologics Manufacturing facility acquired from Stelis Biopharma remains on track for completion of qualification and facility modifications in the second half of fiscal '25.

So to conclude, overall, the underlying operational group performance delivery in the first quarter while largely flat has reflected the balance of a strong Biosimilars performance, offsetting transitory degrowth in Generics and in Syngene. This is consistent with our earlier stated guidance and is in line with our expectation. Performance in the second quarter is expected to largely mirror that seen in the first quarter. In the second half of the year, and as previously guided, we expect to see a transition to accelerated growth underpinned by continued traction in Biosimilars, new product launches in Generics, and Syngene being in a strong position to capitalize on the emerging trends in its business to hit its guidance range for the year, and with momentum expected to build in the second half.

I'd now like to conclude my opening remarks and open the floor to questions.

[Saurabh Paliwal, executive]

[Operator Instructions] We'll take the first question from Amey Chalke. Please go ahead.

[Amey Chalke, analyst]

The first question I have is on the Biosimilars. I agree that we are marketing -- we are increasing market share quarter-on-quarter in the existing products in the U.S. But should we assume the similar improvement happening on the value of these products? Basically, how is the pricing tracking in these Biosimilars so vis-a-vis the market share gains?

[Peter Bains, executive]

Thank you for the question, Amey. I'm going to ask Shreehas to lead the response for that question, please.

[Shreehas Tambe, executive]

Thanks, Peter. Thanks, Amey, for the question. I think the good part is that the Biosimilars opportunity that we are seeing overall in all markets, whether it is North America, Europe or in emerging markets, seems to be very strong. It's shown strong growth for all our products in all geographies.

And if you specifically ask on the pricing front, we are looking at a more stable pricing across regions. In the U.S., we've seen that Biosimilars have held on to their price, particularly those in the oncology space for over 5 years and this continue to hold value. So there is, of course, a competitive dynamics, which will play off. But we expect a much more stable pricing regimen than the other markets that are there. So we expect this to be a very stable market overall, Amey.

[Amey Chalke, analyst]

So should we assume in [Technical Difficulty] increasing our existing biosimilar products with respect to the volume share gains?

[Shreehas Tambe, executive]

Probably lost you in between on the audio. But your question, if I understood correctly, was that, how do we see this in terms of market shares playing out in the future? Is that your question?

[Amey Chalke, analyst]

What I'm asking is, should we assume the value gain in these products correspondingly the market share gain, which is happening in these products, basically. Should we assume that sales to be increasing [ other track ]?

[Shreehas Tambe, executive]

Yes. I think the way you would expect is that there will -- competitive dynamics will play out across markets as products mature. But we really feel that given the increased market shares, there will be a growth in the products and the revenues. Pricing will, of course, erode over a period of time. So that's an expectation that we should all have of any market for any product, but it's a much more gradual price decline. And market share should really be a good indicator of product acceptance and performance.

[Amey Chalke, analyst]

Sure. So a second question I have is on the Hulio, basically our expectation was in FY '25, the market landscape will move towards generic. If you can give some color on the market development here in the Humira market, Humira biosimilar market.

[Shreehas Tambe, executive]

Peter, if I can just go into this and then I'll have Matt join me as well for this answer. Amey, if you go back to the commentary that we had shared on how we see this market evolving, we have said it's a 3-stage evolution, where we've said calendar '23 is when the market opens up, which is when everyone got in. '24 is when we set the market, and that was calendar '24 is when we said market will start to see traction towards Biosimilars, and '25 is when the opportunity really opens up from a calendar year perspective.

What we are seeing right now in the U.S. is that you are seeing Biosimilars starting to take market share, although still a large part of the market is with the originator, but we clearly see that it will move in the direction that we have guided in the past.

I would like, Matt, of course, to add more color to this in terms of how it shaped in '24, and how we see this evolving in '25. So Matt, would you like to please comment on?

[Matthew Erick, executive]

Sure. Thank you, Shreehas. So a little more color around this is that we are starting to see the Biosimilars, you can see this starting to take off. But it's relatively just with 1 large U.S. payer, and that large U.S. payer is primarily using their private label, which is very publicly what's going on. The other 2 large U.S. payers currently still have Humira on their formulary. As Shreehas stated, we do see this as a second half of FY '25 opening up, and we're in a position right now of bidding these products. And we feel that we've got a great opportunity as we look towards the second half in meeting our expectations that we've laid out.

[Amey Chalke, analyst]

If I can add the supplementary question. So assuming that the Humira will get developed in the second half, is there any change in our guidance for this year, considering if there is any delay on the new product launches?

[Shreehas Tambe, executive]

Amey, we've not provided any guidance on the numbers at this point to my knowledge. And the way we see this is that given that for Adalimumab, we are in a very good position that we have integrated, we have a history of commercializing this product since 2018. I would like to point you towards our leading market share position in Europe where we have successfully had this product in the market for a very, very long time. So we believe that this will play out in our favor as the market in the U.S. matures, and we see this market consolidating over a period of time.

[Saurabh Paliwal, executive]

We'll take the next question from Tushar Manudhane from Motilal Oswal.

[Tushar Manudhane, analyst]

Sir, with respect to this inspection at Bengaluru, while the response has been submitted, can you share the time line for implementation of [ lean ] measures?

[Peter Bains, executive]

Thank you, Tushar. Let me again give that to Shreehas to perhaps get someone from his team to reply.

[Shreehas Tambe, executive]

Tushar, thanks for your question. As Peter explained in his opening comments, we did have the inspection from the agency last month. And we are in the process of responding to the agency with a very comprehensive CAPA plan. Once -- and that is within the stipulated time line. So once we've done that, we should be in a position to outline next steps.

[Tushar Manudhane, analyst]

So any broad time line you would want to share to implement this -- or is the approvals of the product will be subject to the implementation of the CAPA?

[Shreehas Tambe, executive]

So like every inspection -- once the inspection is done, the company is expected to provide a response to the observations. These observations are what the inspectors note during their time at the facility. We have noted those observations, and we will be responding to this. The agency typically reviews this in a time frame, but there is no guidance that they have in terms of when they will revert back to us. We expect them to come back typically in the 60- to 90-day time frame, but there is no real time frame that is defined for this. So it would be incorrect to comment on behalf of the agency.

[Tushar Manudhane, analyst]

And progress on the Malaysia side from a compliance point of view?

[Shreehas Tambe, executive]

On the Malaysia side, we're in the -- we have responded to the observations that the agency had made, and we will be looking forward to them scheduling an inspection for us to move forward on that.

[Tushar Manudhane, analyst]

So is it duly -- that would also as a time line, 3 to 5 months can be considering the -- I mean, the inspection time line for Malaysia side?

[Shreehas Tambe, executive]

Tushar, it would be hard to comment on behalf of the agency when they would come or whether they would need an inspection once they have concluded on the Bengaluru inspection. So I wouldn't hazard right now a time line on it. But I can tell you that we are in constant conversation with the agency, and we will provide them with whatever is required for them to assess the readiness of the site to supply new products. I should also point out to you that we continue to supply large amounts of products to the United States from this site and all other regulatory agencies, including EMA, most recently, have approved our facility in Malaysia and in India.

[Tushar Manudhane, analyst]

And just lastly on this Generics Liraglutide and considering the business prospects for Biocon Generics, how do we see like -- what kind of scale up can we expect if you could quantify, let's say, second half FY '25 -- we expect this business to scale up. And if you could also elaborate on the Liraglutide opportunity per se.

[Peter Bains, executive]

Thank you, Tushar. Sid, perhaps you could address that question.

[Siddharth Mittal, executive]

Sure. So Tushar, I think as we've indicated earlier, and Peter mentioned in his opening comments that we have various markets where we have done the filings, we expect that we will -- from European authority later part of this fiscal. We've already got a launch coming up in the U.K. through our partner, Zentiva as well as under our own label. And there are various other markets, which, where we expect to launch the product during this fiscal [ year ]. GLP-1 franchise is a very important part of our growth story. For next couple of years, as you know, there's a huge opportunity in GLP-1 space, both in diabetes and obesity management, and we are very well placed in capturing the benefits of this large opportunity.

In terms of specific numbers or guidance in terms of what the growth is, I think it will be a bit difficult for us to give that. But definitely, the first half will continue to be muted as we have seen in first quarter. But second half, we will see good growth over first half -- second half will be -- significant growth over first half. But the overall year, we still expect like a high single-digit kind of growth levels for the business.

[Peter Bains, executive]

Tushar, if I may, then just add in a little bit on top of that to amplify something I made in my -- something I said in my opening remarks. Obviously, the GLP peptide opportunity is the strategic growth driver for Generics in the coming years and will play into a huge market opportunity being formed by the innovators over the coming years and decade. I think it's important for me just to emphasize here, this is an area of very, very strong group complementarity and synergies as the peptides where we're scaling for global market opportunity complements and has many synergies with the global insulin franchise that we've built in the Biosimilars. And quite clearly, as we look at this opportunity in both diabetes and obesity, we see Biocon being very uniquely positioned with its heritage position in insulin and its leading position in the generic peptides business to look at leveraging the synergies, these complementarities, these convergences to drive a very unique opportunity here for the group.

[Tushar Manudhane, analyst]

Just one more on this. As far as API capacity is concerned, do we have sufficient capacity to cater at least for next couple of years or would we need further investment for Liraglutide API?

[Siddharth Mittal, executive]

So we do have initial set of capacities that we had created, and we are expanding those capacities, which will be sufficient for the next couple of years. But of course, the big drug, which is semaglutide goes off patent beyond 2030 in many of the large developed markets. And for that, we will, of course, add on more capacities over a period of time. But the volume of business that we are targeting over the next 5 years, we will have capacities by end of this year.

[Saurabh Paliwal, executive]

The next question from Neha Manpuria from Bank of America.

[Neha Manpuria, analyst]

Just to understand the BBL business a little bit more on a quarter-over-quarter basis. There seems to be a fairly sharp decline. I'm assuming a large part of this is because of the divestment. So if you could just give us some color in terms of how much of that decline that we're seeing quarter-on-quarter because of the India business divestment versus, let's say, underlying business trends?

[Shreehas Tambe, executive]

Neha, thanks for pointing it out. Kedar, please feel free to jump in on that. I think as Neha -- as Peter outlined in his opening comments, the quarter-on-quarter decline, which you are seeing is, one is to adjust for the branded formulation business, which is a discontinued business that we've seen, and that's a clear change that the baseline is different. The other piece, of course, is that you will see a cyclical nature in terms of how tenders will open up over the different emerging markets. And we'll see a strong growth usually in the quarter 4 before you get into quarter 1. So that is what you are seeing. But I do want to point you towards the performance of the business over last quarter in fiscal '24 over '25. And there, you can see that there's a very strong growth in the product performance. And that is a 19% increase over the product performance and market share that has driven it. So if you look at how the products have performed in the market, there's a very strong uptick of the market. The cyclical nature of this will mean that between quarters you will have movements where quarter 4 could be higher than quarter 1, particularly in emerging markets. But in North America, you see a steady performance across borders, and you will see some minor movements in Europe, where also there are large dependencies on tender timing.

The chronic therapy areas that we operate in actually allows us a natural buffer and a hedge towards some of this, but the tender opening cycles in different markets will cause some of these differences and lumpiness between quarters. Otherwise, we see this moving in the right trajectory.

[Neha Manpuria, analyst]

And so is it fair to assume, Shreehas, that the emerging market piece should continue to grow mid-teens, high teens? It's just a matter of the tender phasing between quarters. But the underlying growth is still in line with the trends that we are seeing for the biosimilar business overall.

[Shreehas Tambe, executive]

Yes. We've seen a strong uptick across markets. It's not just that we have seen growth in North America. And the emerging markets is a growth area for us, Neha. So it is quarter-on-quarter sequentially, you might see that there is some movement between quarters because of, as I said, when tenders open and when supplies begin. But otherwise, on an annualized basis, you will see that across markets our performances will be pretty strong.

[Neha Manpuria, analyst]

Understood. And my second question is on aflibercept. Now we have the U.S. FDA approval, obviously, the lower quarter litigation didn't go our way. What are the time lines that we need to monitor this for the appeals -- appeal for this one? And therefore, does the time line of launch based on how you're thinking about the appeal?

[Shreehas Tambe, executive]

Yes. And aflibercept is an important asset that you draw attention to. It is an exciting asset. It has over $10 billion of sales globally in innovator revenue. So it's clearly a very exciting asset. We have a first-to-file status. We have a first-to-approval status as an interchangeable aflibercept. So we feel very good about it. We have already secured approval for this product in Canada, in the U.K., in Europe and now most recently in the U.S. as well. So we are in a good place scientifically and in the ability to begin supplies.

We recently also announced that in Canada, we will be supplying product come July of next year, which will be the first in that market. We are, of course, in litigation with the innovator in the United States. And as things progress there, we will be able to talk more about it. But given that we are in a litigation right now, Neha, it wouldn't be appropriate to comment on this. I know you made a comment on how the litigation in the district court played out. There were 3 patents that were litigated. 2 were ruled in our favor. One wasn't ruled in our favor, which, of course, we will take up appropriately so that we can get to the patients as soon as that is behind us. So we're working on that.

[Neha Manpuria, analyst]

And one last question, if I can squeeze in. What is the net debt position in this quarter for BBL as well as the consolidated entity? And if you could give us some color on likely repayments in the next year?

[Shreehas Tambe, executive]

Kedar, would you like to take that question, then respond to Neha?

[Kedar Upadhye, executive]

Yes, sure. So Neha, the net debt for BBL is about $1.2 billion, slightly higher than $1.2 billion. You would see a sequential improvement because of working capital efficiencies, which have come in this quarter. And I mean, Saurabh, can sort of clarify the net debt at the group level. But at BBL, it's about $1.2 billion plus, as I clarified, with some incremental efficiency in this quarter.

With respect to the repayments, I think there is a schedule of repayment that we have agreed. And as you would expect any company to do, we are also thinking about ways to optimize both the repayment time lines and the interest rates as well. So we're thinking about various options to get that sorted up.

[Peter Bains, executive]

Neha, let me just add on to that to build on what Kedar said. We've obviously been comfortably servicing what our debt position. To date, we've made clear that we are looking to reduce it. We've taken action, last year reducing acquisition debt by $250 million. It's a clear management priority that we will look to continue to reduce that debt level. And we have a wide range of options available to do that, and I'm sure we'll take further action during the year.

[Neha Manpuria, analyst]

Saurabh, if I can get the net debt number on the consol level, please?

[Saurabh Paliwal, executive]

Yes. So net debt at the consol level will be about $1.1 billion plus.

We'll take the next question from Surya Patra from PhillipCapital.

[Surya Patra, analyst]

Sir, my first question is on the aflibercept only. You have discussed about the potential U.S. opportunity and all. Particularly -- possibly that commercial benefit can flow in Europe first. Could you share what is your competitive positioning there considering the multiple approval already? And when do you think that benefit can start flowing in for us?

[Peter Bains, executive]

Shreehas, again, I think if you could take that.

[Shreehas Tambe, executive]

Thanks, Surya, for that question. I think the -- just a couple of clarifications. I wouldn't speculate which market will open up first other than the fact that Canada, we have a very clear market entry date and we are the first to enter there. So that is one clarity. We do not also think, Surya that, to our knowledge, there are multiple other players who have got approval. I'm sure there are multiple players developing the asset. So there will be -- given that the ticket size is large, we expect competition to be there. We believe we are very well placed given our advantage in terms of the timing and our position in the market, given that we are present in the market as a fully integrated player. We believe that we should be able to provide an option to patients sooner and in a much more efficient manner than has been available so far.

[Surya Patra, analyst]

And sir, just an extension to this, is the 1-year exclusivity opportunity because it is an interchangeable one in the U.S. that will be ensured to us given the 2 other players have also got the approval for U.S.

[Shreehas Tambe, executive]

So I think the interchangeability approval in the exclusive part that you talk about, Surya, is something that is exclusivity to claim interchangeability. It is not like an exclusivity to commercialize the product like you have in a 505(b)(2) or A&D kind of an exclusivity where you have the ability to supply the market exclusively. I think this is more of your ability to claim interchangeability on an exclusive basis. So yes, we will have that for a period of 12 months. And once we've got the product to the market, we will look to explore that.

[Surya Patra, analyst]

Sir, my second question is on the adalimumab. In fact, 2 points that I wanted to clarify here. First is that, given the kind of contract that we have signed -- and signed -- and that is what we have indicated. So based on this, is there a possibility to share that, okay, what are the kind of volume share that we could be thinking about, let's say, for FY '25 or FY '26, whichever way that you can possibly share that. That is one.

And secondly, the interesting development that happened during this quarter relating to adalimumab that one of your competing partner -- or competing peer in the adalimumab has exited out of the opportunity by selling all their rights just for $40 million. So whether it is a worrisome factor for the entire Biosimilars opportunity, and in the U.S. market, the way things are happening about the progression of the Biosimilars and all that. If you can share your view on these 2 aspects relating to adalimumab, then that would be useful, sir.

[Shreehas Tambe, executive]

I think both great questions, Surya. Let me respond to that. The first is, we've not given guidance in terms of our projections in the past and we continue to stay with this. It's not advisable to give guidance on market shares. We will let you know as market evolves and we will see how that progresses. So I will refrain from commenting on market shares.

The second question that you talked about, which was you've seen player -- a particular player exit the market by monetizing that asset and moving on. I think this is in line with the commentary that we had shared in the past that we do not see this market as 8-, 9-, 10-player market for a long time. We expect this market to consolidate, and we expect those players which will -- those will have the ability to endure over a period of time, which requires you to be fully integrated. The ability to be in control of your development, your manufacturing, and your ability to supply the market through a strong commercial force, I think that is really what will allow you the ability to be in the market for long. And we believe Biocon Biologics has that now post the integration of the business that we acquired from Viatris. We believe we are in this further long. So, Surya, that is what we see happening. And we look at this as what was along expected lines.

[Surya Patra, analyst]

Sure, sir. Just one clarification from Kedar. The staff cost this quarter is meaningfully up. So is it entirely because of the field force responsibility or the kind of marketing responsibility that you have taken up from Viatris from last quarter, it is entirely because of that? And hence, it is -- this is the kind of run rate going ahead per quarter?

[Kedar Upadhye, executive]

Yes, Surya, you're right. I think the stock cost was expected to go up to reflect the full quarter effect of the colleagues who have come over from Viatris. So that was expected, and that's in line with plan. You could see a similar reverse switch by the way, in other expenses. That has come down. So in fact, if you would have noticed in quarter 3 and quarter 4, the Spain run rate was touching $110 million for Biologics. That has come down to $90 million as we had [ planned ]. So staff cost was expected to go up, and it has gone up to reflect the full quarter effect of [ mainly ] of colleagues who have come over to us. But overall, costs are down by 10% compared to the peak.

[Surya Patra, analyst]

Okay. Then on the margin front -- sorry, I'm just extending this point again. On the margin front, we have seen a sharp decline this quarter, maybe it could be just a quarter-specific one, but this is the lowest ever quarter margin over the last 5 years. How would you address this, Kedar?

[Kedar Upadhye, executive]

Which margin you're referring to, Surya? Is it consol BBL [ 80 ] margin, EBITDA margin, which margin you're referring to, please so that we can answer your question.

[Surya Patra, analyst]

I was looking at the EBITDA margin without factoring the Eris transaction.

[Kedar Upadhye, executive]

Yes. So that we had said, it is about 23%, and that's consistent with what we reported last year as well. So I think core EBITDA is healthy at 30%. EBITDA is at 23%. And you can't compare the margins for the last 5 years because before FY '23, business was different. So the revenue scale was different and the nature of business was different. So I think we are in line with what we had expected, and we will work through in terms of improvement through revenue and cost levers. But those are not comparable, last 5 years margins are not comparable to what we're reporting [ is small ].

[Saurabh Paliwal, executive]

We'll take the next question from Manoj Bahety from Carnelian Capital.

[Manoj Bahety, analyst]

I have just one question for Kedar. If you can highlight maybe as capital raising options, which we are considering and any time lines around that to deleverage our balance sheet. And what's the plan to deleverage our balance sheet in next 1, 2 years?

[Kedar Upadhye, executive]

So, Manoj, I will make a first attempt and I'll request Peter from a group standpoint to sort of clarify as well. So as you can expect that a company of this scale and company of this capital structure will have several avenues at our disposal to conduct financing activities. And those activities help us improve our costs of financing, appropriate capital structure and maturities and all that. So I think you should expect us, like any other company in our situation would do to be active on that front. But it's going to be difficult for us to give you specifics unless those are officially approved by board and position to be announced. So I'll pause there, and maybe, Peter, you can.

[Peter Bains, executive]

Thank you, Kedar. Let me build on that. Thank you, Manoj. And as I said earlier, I mean, clearly, we have been comfortably servicing the debt for the last 2 years related to the acquisition. We continue to be comfortable to do that. We have clearly stated now that several times that debt is obviously a management priority and that we are taking action and we'll continue to take action to manage and reduce that. So we took action last year, as I said earlier, with a $250 million reduction on the acquisition debt. And we continue to look at ways to manage and reduce the debt. We will be taking further action this year. But as Kedar has said, we will advise you as and when those opportunities mature.

[Saurabh Paliwal, executive]

We'll take your next question from Kunal Randeria.

[Kunal Randeria, analyst]

Sir, on this aflibercept interchangeable exclusivity that you are vying for, would it be a shared one or an exclusive one?

[Shreehas Tambe, executive]

So Kunal, the aflibercept exclusivity is already granted on approval. So it is not something that we are applying for now. And that exclusivity is also part of what the guidance provides for. And it becomes only post commercialization. So it is not -- right now, it is not a relevant point. But given that we are the first interchangeable approved biosimilar, yes, you will certainly look at this when you get the commercialization.

[Kunal Randeria, analyst]

Sure. So when you do commercialize it, it will be just you having the interchangeable exclusivity, right?

[Shreehas Tambe, executive]

So we were approved on the same day with another firm, which got an approval along with us. So we will have to see how that plays out, and we will keep posting on that.

[Kunal Randeria, analyst]

Sure. And sir, just on Liraglutide potential, should we sort of assume or believe that the potential is bigger in markets outside of the U.S.?

[Peter Bains, executive]

Sid, would you take that one?

[Siddharth Mittal, executive]

Well, I would not necessarily say it's bigger outside of U.S. U.S. is also a big market. Of course, there's a shift of patients from Liraglutide to semaglutide in the U.S. But that said, there are patients, large number of patients who continue to take Liraglutide in the U.S. But the way I look at other markets, especially the MoW markets, there is a huge market expansion potential available when you have a generic Liraglutide, which will be launched by our partners. And because the semaglutide, which is where most of the patients have moved of course, priced at a very high level compared to Liraglutide. And monthly treatment cost, what a generic drug will offer will expand the market. So we definitely are working with our partners in various markets, the large MoW markets, to see how there could be an expansion. And Europe continues to be an attractive market for Liraglutide as well. So I would say it will be a very evenly distributed numbers in the U.S., Europe and in Most of the World.

[Kunal Randeria, analyst]

And just one more, if I can squeeze in. Just one clarification. Is the Stelara launch a contingent on your plant clearance by Feb '25?

[Shreehas Tambe, executive]

I think it requires the FDA approval before you can launch.

[Kunal Randeria, analyst]

Okay. So let me fix this way, is the FDA approval withheld because of the plant issues?

[Shreehas Tambe, executive]

No, no. It's not -- nothing is withheld right now.

[Saurabh Paliwal, executive]

We'll take the next question from Amey Chalke, a follow-up. The next question is from Ashish Thavkar from JM Financial.

[Ashish Thavkar, analyst]

Sir, are there any time lines to deleverage balance sheet? Because I guess it's eating a lot of the management's bandwidth. So are you putting any certain time lines as to when do you want to deleverage the balance sheet?

[Peter Bains, executive]

Ashish, thank you for that. Again, I'll amplify that we are looking at this as a priority. We intend to take action this year, but I can't be specific on time lines.

[Ashish Thavkar, analyst]

And understandably, obviously, we now have Biosimilars, the Generics business, the API one. At any point in time, would you want to share some of the business elements -- is that also on your cards -- the go-forward strategy?

[Peter Bains, executive]

So I think we feel that there are strong opportunities in both the Biosimilars and the Generics business, and there are no plans in -- that we're looking at to do any divestments.

[Ashish Thavkar, analyst]

And lastly, on Eylea, the injunction that we have, any time lines that you are sharing with the investors?

[Shreehas Tambe, executive]

We have shared, Ashish, the time lines that we will be looking to launch this in Canada mid-next year. So we've already talked about that. We just discussed that there is an ongoing litigation in the United States. And we will see how it works in Europe and other parts of the world.

[Saurabh Paliwal, executive]

The next question is from Jamsheed K.

[Unknown Analyst]

So I would like to know about the [indiscernible] ustekinumab time line. So in the previous quarter you have already mentioned the submission in the U.S. So I begin, can you please provide light on the U.S. and EU time line?

[Peter Bains, executive]

Shreehas, would you take that one?

[Shreehas Tambe, executive]

Thanks, Peter. I think, Jamsheed, thanks for the question. We had indicated that we have made a submission to the U.S. FDA and to the European authorities already for both these products and these products are under review with the agencies. Once they are approved, we have also been able to negotiate a risk-free launch date and agreed settlement date with the innovator for Stelara in the United States, and we will be amongst the first wave of countries launching this early next year in the last quarter of this fiscal once we've got the product approval. So that's the status on ustekinumab, Jamsheed.

[Saurabh Paliwal, executive]

We'll take the next question from Rahul Jeewani from IIFL Securities.

[Rahul Jeewani, analyst]

Sir, if I'm not wrong, there is a deferred consideration, which is payable to Viatris this year related to the deal and our option to in-license Eylea. So I think that consideration which is payable to Viatris is around $335 million. So how are we looking to fund that? And given that, how are you looking at your debt at the BBL level by the end of this year?

[Peter Bains, executive]

So maybe I'll start and Kedar, Shreehas, you can add in. I think the first payment that you referred to has already been made. And the second payment that you're referring to, we will address when it's due. So no issues, no problems there. And with regard to the debt in BBL, I think we've addressed that several times to other questions that it is clearly a priority. We intend, as we did last year, to reduce further. We're exploring a number of options. And as and when those mature, we will advise. And other than that, we can't give any more detail, be more specific on what option and what time line, but we will address that, and I think resolve both the -- any payments due and work to reduce the debt further during the year.

[Rahul Jeewani, analyst]

Sure, sir. So essentially, the debt at the BBL level, which we have right now, which is USD 1.2 billion. That is after taking into account the first payment, which we have already made to Viatris?

[Peter Bains, executive]

Yes, it would be.

[Saurabh Paliwal, executive]

We'll take the next question from Prachi Pallavi. Unfortunately, we are unable to hear you. We'll move on to next participant. The next question is from Dhaval Bhalodia, a retail investor.

[Dhaval Bhalodia]

I had a question regarding the -- mainly for the U.S. biosimilar sector. As Peter mentioned, some -- with major PBM and specialty pharmacy forming their own subsidiary to market their own biosimilar and capturing the significant markets there with product like the Humira biosimilar. And in the future, while that maybe happen and potentially applying the same strategy for the future product as well. And the remaining major PBM player, I think they are doing the strategic tie up with other pharma. So how the Biocon plan to capture a profitable market share for this featured biosimilar product because most of like Stelara, [ Hulio ], they're most of like the retail specialty product.

[Siddharth Mittal, executive]

Shreehas, I think that's one for you and perhaps, Matt.

[Shreehas Tambe, executive]

Dhaval, thanks for your question. I mean, it's a very valid one, given what we have seen. Matt, maybe you can also join me in responding to this. So what you are basically asking here is what we saw in case of Humira where we saw one of the PBMs work through a channel, which was more like a captive to white label or private label or product, which then they can source, and that's been gaining market share. That is certainly one of the things that PBMs have used to capture more share of the pie, that's an activity that we have seen, Dhaval. And that is -- it is something that can happen in the market. We are watching this closely. Not every product will, of course, go through that route, and that is not necessarily a practice that we expect to see happening across every product, but it is something that we are seeing PBMs trying to do to protect a larger share of the pie and get a larger piece of the business. But I'll let Matt talk to you more about this. Matt, over to you.

[Matthew Erick, executive]

Thank you, Shreehas. Some other key things, as Shreehas said, it's not just the commercial environment. There's also a U.S. government business that's not part of any private pay. There's also closed door networks that we're very familiar with. There's also the hospital channel. There's quite a few other channels in which we can play in. Certainly, as Biocon, we're competing aggressively in these private labels. As you know, there's only one that's been really established. We are seeing some foothold taking part in maybe another PBM establishing one, which we're in conversations with, but then the third largest is still remaining as a traditional PBM. So once those private payers go with one, the others open up because we haven't seen overlap across. So there's still opportunity for us in all the Part D programs that are out there.

[Saurabh Paliwal, executive]

Ladies and gentlemen, that was the last question for the day. Thank you all for joining today's investor call. And if there are any subsequent questions or clarification needed, please do get in touch with us. With that, have a good day, and goodbye.