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Biocon Ltd
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Ladies and gentlemen, good day, and welcome to the Biocon Limited's Q2, FY2019 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Saurabh Paliwal from Biocon's Investor Relations. Thank you, and over to you, Mr. Paliwal.
Thank you, Janice, and good morning, ladies and gentlemen. Welcome to our Second Quarter Fiscal 2019 Earnings Call. Before we proceed, I would like to remind everyone that a replay of today's discussion will be available for the next few days about an hour post the conclusion of the call. We shall be putting our transcript on our website in the coming days as well. To discuss this quarter's performance and outlook for the rest of the year, we have the company management comprising of Dr. Kiran Mazumdar-Shaw, our Chairperson and Managing Director and other colleagues from the senior management team. I would like to take this opportunity to remind everyone about the safe harbor. Today's discussion may be forward-looking in nature based on management's current beliefs and expectations. It must be viewed in conjunction with the risks that our business faces that could cause our future results, performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. After conclusion of this call, if you need any further information on -- or have questions, please do get in touch with me. With that, I would like to turn the call over to Kiran Mazumdar. Over to you, ma'am.
Thanks, Saurabh. Thanks, Janice. Good morning, everyone. Let me start by wishing all of you and your families a very festive and happy Diwali season ahead. I now welcome you to Biocon's Earnings for the Second Quarter of Fiscal Year 2018-2019, and I would like to start with the key highlights for the quarter. As you're aware, our partner Mylan commenced commercial sales of Fulphila, which is our biosimilar pegfilgrastim in the U.S. market. I should like to remind you that this is the first biosimilar pegfilgrastim to be approved and commercialized in the U.S. and the first product from our joint portfolio to be launched in the U.S. market. Our partner Equillium filed an investigative new drug or an IND application and received the go-ahead from the U.S. FDA to progress Itolizumab, our novel anti-CD6 molecule into clinical development in the U.S. in certain orphan indications. In September, the European Medicines Agency's Committee for Medicinal Products for Human Use or CHMP issued a positive opinion recommending approval of Fulphila, our partnered pegfilgrastim, our biosimilar pegfilgrastim. And the CHMP positive opinion will now be considered by the European commission and with a likely approval expected by November 2018. In October, the same committee also issued a positive opinion recommending approval of Ogivri, our partnered biosimilar, trastuzumab and the decision of this approval by the European Commission is expected by December 2018. Our partner Mylan initiated the commercial launch of biosimilar, adalimumab, across major markets in Europe post 2016, 2018. And Biocon will receive economic benefits for this product in line with our global collaboration with Mylan. Now moving on, I would like to present some key financials for this quarter. Our total consolidated revenue for the quarter was at INR 1,375 crores up 35% over last year. Revenue from operations were INR 1,321 crores, which grew 36% over last year. This includes licensing income of INR 5 crores for this quarter compared to INR 8 crores in Q2 of last year. In terms of segmented performance, Small Molecules revenue was at INR 432 crores for Q2, up 23% over last year. The Biologics segment was the strongest performer reporting 136% growth to INR 367 crores. Branded Formulations were down 7% at INR 164 crores and Research Services, or our Syngene business, grew 25% to INR 419 crores this quarter. We booked a ForEx gain of INR 24 crores this quarter as compared to INR 18 crores in Q2 of last year, and this gain is, of course, reflected in the Other Income line of the profit and loss statement. We incurred gross R&D spend of INR 120 crores this quarter corresponding to 13% of revenue excluding Syngene. Of this amount, INR 77 crores is reported in the P&L. We capitalized an amount of INR 43 crores related to our biosimilars and insulin analog development expenses. The gross spends are higher than last year, primarily on account of increased spend in biosimilars and insulin analogs in terms of the development program. Based on strong operational performance, EBITDA grew 69% to INR 394 crores. EBITDA margin for this quarter was 29% as compared to 23% in the corresponding quarter last year. Core margins, that is EBITDA margins net of licensing, ForEx and R&D, improved from 26% in Q2 last year to 33% this quarter. Net profit for the quarter increased from INR 69 crores in Q2 of last year to INR 355 crores this quarter. This includes one-time gain arising out of an exceptional item reported in the quarter, as the company fair-valued its investment in U.S.-based, Equillium. Adjusting for the exceptional gain and associated tax, net profit for the quarter was INR 184 crores representing a net profit margin of 13%. I'd now like to delve a little deeper into our segment -- segments. Small Molecules, as I mentioned earlier, grew 23% over last year. This was on account of a better product mix accompanied by volume growth in statins, immunosuppressants and other key APIs. Our Rosuvastatin Calcium and Simvastatin tablets continued to gain market share in the U.S, which added to the growth. The Biologics segment revenue more than doubled as compared to last year, growing 136% year-on-year. Sales and profit share from commercial launch of biosimilar pegfilgrastim in the U.S. led to the strong performance during the quarter. Trastuzumab sales continued to do well in the emerging markets with launches in newer geographies and increased prescription share in markets where it has already been commercialized. Recently, our local partner launched a product in Turkey where our trastuzumab was the first biosimilar trastuzumab to be approved in Turkey. In Algeria, our product continues to enjoy a wide acceptance amongst patients and prescribers whilst there has been a strong uptick of trastuzumab in Brazil. The insulin business recorded a strong growth led by sales in several emerging markets. Biocon holds a dominant market share in human insulin in Mexico, Malaysia, Thailand and many markets in Latin America directly or through its local partners. When it comes to Branded Formulations, the revenues for this segment in India and U.A.E. decreased 7% compared to last year. Performance in India was impacted on a higher base of Q2, which benefited from restocking by trade post GST implementation last year. Decrease in sales is seen -- which has been seen in major divisions was partly offset by growth and Comprehensive Care and Nephrology. In U.A.E, the in-licensed Metabolics product portfolio and Glaricon, our brand of Insulin Glargine continued to gain market share while in the Branded Formulations generics market, we faced challenges with the repricing of products by the Ministry of Health. Research Services, which is our Syngene business, reported a growth of 25% over last year, driven by small molecule discovery services and increased traction in the dedicated R&D centers. During the quarter, Syngene has commissioned a new dedicated facility for Bristol-Myers Squibb and renewed its collaboration with Baxter which involved a widened scope of engagement and setting up of additional infrastructure. Let me now turn to product development updates. As a part of our Novel Molecules portfolio Phase II/Phase III study of our oral insulin candidate Insulin Tregopil is progressing well. Equillium, our partner for Itolizumab for the U.S. and Canada received, as I mentioned earlier, received approval for an IND for the molecule from U.S. FDA. It plans to conduct clinical trials for orphan indications, including treatment of acute and chronic graft-versus-host disease or GVHD and asthma, and expects to initiate clinical trials in the first half of 2019. To fund the clinical trials Equillium raised $65 million in its maiden public offering and listed on NASDAQ on October 12. [Based on] the IPO pricing, Biocon's 13.5% stake in Equillium is now valued at $32 million. Now before I conclude, I would like to summarize our performance and our expectations for the rest of the financial year. We have finished the first half of this fiscal, delivering a strong performance across Small Molecules, Biologics and Research Services segments. Increase in sales growth hedged by a better product mix in Small Molecules and growth in the Biologics segment led by pegfilgrastim, has resulted in better margins, and consequently, doubling of earnings over the first half of last year. We look forward to a strong performance across business segments in the second half of this fiscal. We expect momentum in the Biologics segment to continue with new market launches expected later in the year and increased penetrations in markets where our products have already been commercialized. With that, I'd like to open it up for questions and answers. Thank you.
[Operator Instructions] We will take the first question from the line of Prakash Agarwal from Axis Capital.
My first question is trying to understand this biologic sales that you've done. Is there a thought of revising your guidance of $200 million, given the momentum has really picked up? So just wanted your thoughts there? As you just mentioned that you see incremental penetration across products and also new launches in new markets. That would really help.
So Prakash, there is no revision to the guidance. We have -- as you know, the numbers for the first half have been strong, and we are -- that gives us added comfort that we will meet our $200 million guidance now. Hopefully, we can beat it, but we cannot give a number -- a revised number for the year.
Okay. And the guidance was largely for the emerging markets -- did not include regulated markets. So it would be over and above, right?
Well, the guidance was primarily from emerging markets, but it would include large quantity for developed markets. So we had expected launches in developed markets in this fiscal.
Okay. Fair enough. And just trying to understand this better, would it be fair to say that the launch quantities you mentioned about peg, it's like it's going to increase from here, and hopefully there is no channel filling as such because it's a huge molecule in the U.S. Would that understanding be correct?
I think it's -- this is Paul. I think it's early days in the launch, and so we'll have to see how this evolves and I think really Mylan will be best placed to comment on trajectories going forward.
Okay. And last question is on margins. Despite higher R&D, margins has really come off -- come on well also. This is the new basis, what we should consider going forward, given the business momentum is picking up?
Well, I will not really look at one quarter and say that's the new base. I think we would continue to have high margins and we are still growing our Biologics segment, but the Biologics segment is profitable compared to last year and then compared to our other segments. If you look at the segment-wise results this quarter, even the Small Molecules segment delivered a strong profit line. And Biologics, which was actually loss-making last year because of [indiscernible] Malaysia has been profitable. So combination of everything will hopefully continue to improve our margins on a go-forward basis.
Next question is from the line of Dheeresh Pathak from Goldman Sachs.
I wanted your thoughts on the biosimilar Glargine with Merck and Samsung withdrawing from that. Just wanted to understand, if you can give us some thoughts on why they would have done it?
Well, we won't be able to speculate on why they would do it. Our information is what we too have [read], what's in the public domain. However, from our perspective, of course, we have strongly invested in our entire insulins portfolio, comprising not just Glargine, but the basket of insulin analogs as well as recombinant human insulin. And we have always guided saying that we wish to be a dominant player in this space. We've already, I think in Kiran's opening remarks, mentioned how we've already established dominant position in many of the key emerging markets. And we would, as and when, we are able to get approvals and penetrate markets globally, try to continue to believe in this space and invest in the space, going forward. Clearly, of course, awaiting the opening of the U.S. market, which we have said can happen for Glargine sometime in early 2020 and that would further bolster our presence.
Okay. And on the numbers, just one question. So ex of Syngene, the other expenses in Biocon's business, except Syngene, the overheads, which is the employee costs and other expenses, so they have increased quarter-over-quarter. Adjusted for R&D also, they are up by some INR 40 crores. So is there some investments in employee, some hiring or something of that sort? Or is there some one-off? If you can talk about that. Is there a currency one-off in your other expense ex of Syngene? I know they're called out. So is there anything? If you can explain, that will give more color on this.
Currency impact is in other income. In terms of staff cost, we continue to add more people every year to aid the growth of our businesses, various businesses, and other expenses have gone up in line with the revenue. So some of the selling expenses, which are directly linked to the sales of -- they have gone up. So there's been no abnormal increase in the quarter
Okay. So as you book -- as you will have these large dollar-denominated earning stream that have come from developed markets' biosimilars, are you going to hedge that or you'll not hedge those?
Well, we do hedge our net exports to range forwards. And so far -- I mean, most of our hedges are within the range, and so we continue to benefit from the repeated [ proceeds ]
Next question is from the line of Surya Patra from PhillipCapital.
Also, positive development on the Itolizumab front. Just wanted to have some clarity on this Itolizumab front. This is the [indiscernible] licensed molecule for equilibrium, right?
That is correct.
Okay. And now -- so what incremental benefit Biocon can have out of this development if it progresses well, so whether the manufacturing rate or marketing or profit sale rate? Or what that can come for Biocon out of that?
Okay. So let me just give some color to this transaction. This is a -- I just say a licensing deal for Itolizumab for the U.S. and Canadian market for a set of indications. The licensing deal involves, as Kiran mentioned in her opening remarks, an equity stake in Equillium, which falls to the IPO and is about 13.5%. It is clearly -- Biocon retains the manufacturing and supply rights for the product to Equillium. Both clinical as well as commercial. On top of that, Biocon is entitled to royalties and sales milestone upon commercialization.
[Operator Instructions]
Okay. Is there any funding requirements there for the clinical developments on the Biocon side?
No. The -- as [ Kiran ] mentioned in the opening remarks, the funding of this has been arranged through an IPO by Equillium. And as disclosed Equillium raised about $65 million in the IPO, which is adequate for the funding requirements for this molecule for the indications outlined.
Okay, fine. Great. Secondly, on the [ pegfilgrastim ] center, is there any clarity that okay -- so whatever swinging on the Biologic revenue that we are sequentially seeing, what portion of that could be coming from the peg and what from the progress in the emerging market? And also, if you can indicate whether any profit share of the peg is there in this number, Biologics sales number?
Yes. This quarter, because of the launch of pegfilgrastim in the U.S. market the revenue includes both the supply of product as well as our share of profits from Mylan sales. And -- so as we have already mentioned, a good chunk of the increase, the delta over previous quarter, has come due to this pegfilgrastim. However, our base business is strong and continues to grow in other geographies and with other biosimilars.
So that means there is no lag between the profit share and the revenue share in the peg business. That is what -- if I'm understanding very well, because the launch still happened in July, right?
So we booked the profit share when Mylan sells the drug to their customers. The inventory that they hold, we do not book the profit on that. So there will be some -- because we -- if you recall our first quarter, we had supplied a large quantity, actually, in quarter 1, which would have been liquidated by Mylan in quarter 2. And we still have inventory with them, which [ follows ] the profits will come in next quarter.
Okay. So that means that this quarter also there was supply.
No, no, continuous supplies . Every month, we'll supply.
Okay. Third, on the [indiscernible] adalimumab front. Is there any one-off benefit that is there because of that adalimumab going to Europe?
No. There is no -- no. There are no licensing payments from Mylan, and this is in-licensed product from Fuji Kirin in Japan. And there will be -- the launch has been done with that product.
Okay. So can you provide some clarity about what kind of milestone that Biocon can get?
There is no milestone. We will get our profit share.
Okay. Whenever that happens. And just one more last question, sir. On the CapEx front, since you are seeing the successful launch of pegfilgrastim in the U.S., and there is the likelihood of the launch of the pegfilgrastim in the U.S. -- sorry, in Europe. And there is example also visible in the emerging market. So is there any thought process there -- clear thought process about the [ map land ], what we have been talking about since some time, and when that should be ready?
No. As mentioned, the manufacturing facility is already [on]. I think, we mentioned it for the last few quarters that we have triggered an expansion of our monoclonal antibody facility [indiscernible] of about $200 million spread over 3 fiscals. And that's very much on track.
Okay. And that will be available in 2 years' time? Is that fair?
That's a fair assumption for the coming -- approvals would be market-by-market. But from a commissioning standpoint, yes.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
My first one is on pegfilgrastim in the U.S. again. What is the current market share that you are tracking as of the quarter close? And how is that tracking in line with your expectations? And lastly on this point, how has the [innovator] kind of responded to the entry of the biosimilar?
So in terms of what's available in the public domain is what I can allude to. Any detail-specific questions and launch strategies and launch update, I will defer to Mylan. What we know from publicly available sources is that there has been a 3% market share of the [indiscernible] market in this [indiscernible] based on the initial data.
Okay. And looking at your current debt market share, is it tracking in line? Or do you have to do certain other things like take pricing down? Any of that needs to be done?
I will defer all these questions to Mylan, but what I can say is right now, as far as Biocon is concerned everything is going as per plan.
My second question is on the Small Molecules business, given we seen a clear sequential uptick, margins have also improved. So can you just give us some outlook on how the pricing environment is, especially on the U.S. and in the rest of the world? And what led to this kind of uptick sequentially?
Well, one reason for the uptick has been the better product mix that we've had and of course the increased demand. We've seen both uptick in volume as well as an uptick in terms of steadiness in terms of the pricing. Based off the revenue gain is, of course, also come from the dollar benefit that we've -- currency benefit that we've had. So clearly, I think in the past, we mentioned that actually some of -- in terms of some of our base products like the statins, we believe we've seen the bottom of that, in that there's been no further significant erosion in terms of prices. We guided for like a low-single-digit erosion of the prices. Some of that erosion has been offset by the currency. Secondly, of course, you know that our business has -- in terms of generic formulations throughout India business has also started to make meaningful contribution to the Small Molecules segment to those statin and Simvastatin and we would have a couple of other molecules in that market going forward. So that also has been a decent contributor to the revenue.
Okay. Third question is on the adalimumab. Do you know what the price discount that you had to launch it in Europe?
No. That is not something that we could talk about.
Okay. And my last question is about the tax rate 1Q, I think you had guided that tax rates will go up. If I strip out that exceptional gain, it seems to have come down at 21%, at least. That's what we could calculate. Is there some changing there or we stick to our earlier guidance?
I think for Biocon exclusively, we should be looking at 24%, 25% for the year.
We'll take the next question from the line of Abhishek Sharma from IIFL Research.
I want to congratulate you on positive changes, improvements from Mylan. So I just want to understand the launch of [indiscernible]. So what will be your strategy to launch in those markets already occupied by various key companies? So how will you launch the product [indiscernible] to the market share?
All of these commercial decisions in the developed market for our partnered portfolio with Mylan would be basically determined by Mylan. So all these questions regarding commercial strategy launch timing, pricing, competitive responses are best handled -- addressed by Mylan.
I see. One more question about emerging market. So apart from Turkey, Algeria and Brazil, what are your next countries you think to launch your products? Is that driven by [season]?
We continue to file in emerging markets, and as and when we get approvals, we will launch. Basically the launch cycle will be determined by the cycle of approvals. And it's hard to predict, which country will approve first, because we do multiple filings across many markets.
Next question is from the line of Sameer Baisiwala from Morgan Stanley.
Just on Glargine for the U.S. market. What are next few steps for you to do the site switch to Malaysia?
I think our bridging plan is progressing well and that will give us basically the data that the U.S. FDA requested for. And so once we have the data, that we expect to respond to the CRL. As you know we've always guided that there will be no impact on the launch timing, which is largely determined by the 30-month stay and that position continues to hold.
Okay. Great. And afterwards you submit the -- once you finish the bridging study, then what's our next couple of steps? Would you require FDA to come down to do reinspection?
No. No. See, because this is about the dossier. This is not about GMP. The data is largely a clinical bridge, so it's more a dossier evaluation.
Okay, got it. And the second question is from a launch timing perspective, the underlying [indiscernible], do you not think that that's -- that can potentially delay you?
Well, as [indiscernible], what I'm saying is that case is what [indiscernible] the 30-month stay. That's the 30-month stay I'm referring to, which ends some time in March or April 2020.
Yes. That 30-month stay is for the approval of 505(b)(2).
Correct.
Does this -- it's not the timeline for the judge to give the judgment. That is what's still undergoing, so.
So that is Mylan's call in terms of launch strategy, post the 30-month stay, subject to us getting the approval.
Okay. And the next question is on the pegfil in the U.S. I know you can't talk too much on the commercial side. So it's a general question, which is coming from REMICADE, INFLECTRA launch. So in order innovator sign exclusionary contracts through bundling of his portfolio, so it's a very general trend in that what it resulted in was complete blocking out of the biosimilar more or less. Now the question here is for pegfil, is it something that you so far have seen in the market or not? I'm not looking for any data or any size [ state ]?
Sameer, this is Paul. Thanks for your question. I think we have seen that dynamic and a lot of press about this dynamic with INFLECTRA. I think this is different. The product is present in a different part of the market. So I think we can't bridge over directly necessarily. Obviously, I think specifics on this will have to come from Mylan, but I think I will just suffice it to say that we are in a different part of the market and I think the other thing to remember is that Pfizer is still recognizing significant, meaningful sales that are growing 20% or something like that quarter-on-quarter in the U.S. even with the challenges that are faced.
Okay. Also, if I understood it correctly, you are in a different part of the market. So the part of the market that you are in is not -- can't be blocked so much through these exclusionary contracts.
So each company will have their lots of ins-and-outs to how each company will apply their contracting and their pricing strategy and so I guess, I was just -- my limited comment would be that it's not -- even within the same molecule, you won't be able to necessarily apply the same thinking across all of them, but I think certainly with a different molecule in a differently structured market, I wouldn't make that assumption. But I think it's better to be addressed to Mylan.
Okay. Very clear. And my favorite question, Arun for you, for Copaxone. How is the refiling in process? Are you on track for fiscal '19 refiling?
See, I always tell you that having once you've given your guidance and then having not kept that I will refrain from giving you guidance but believe me, we are actively working on that and we would file as soon as we can.
Okay. And the last one from my side is on Aspart. How is the progress you've commenced, the regulated progress you've commenced the Phase III physical trials for that?
So Sameer, this is Shreehas. We've -- as you said before, we are expecting to start the clinical trial in the second half of this year, and we're trending well to those that we've guided before.
And you would take 24 months to complete this? Would that be the understanding?
So the trial timeline could around that time and then you can follow with the phase of finalizing the database and then putting the documentation together for the CSR.
Next question is from the line of [ Vipul Shah ] from [ Sumangal Investment ].
Can you comment on the capacity utilization of Malaysia, sir?
We do not comment on our capacity utilization for our plants, but Malaysia has done fairly well. And I had mentioned earlier that this quarter, we have seen a good profitability for our Biosimilar division. And Malaysia, we've guided would be breakeven this year, and we are on track for that. And that breakeven. And that -- it will get breakeven only when it has a decent capacity utilization, and we continue to gain our sales of insulin and Glargine of Malaysia as more and more approvals from the emerging markets come in.
So should we interpret that we should break even by the year-end? I mean financial year-end?
Can you repeat the question?
Means we are breakeven in this quarter or are we expecting it to by this year-end? I mean March '19?
Sir, this quarter has been a very minimal impact of Malaysia, but to be breakeven for the year -- for the full fiscal year.
Next question is from the line of Ranjit Kapadia from Centrum Broking.
I have 2 questions. First question is how many scientists are there in the BMS product and Baxter project? And my second question is related to the number of [indiscernible] in Branded Formulations segment. And then this Branded Formulation is likely to reach critical mass, because currently, it is just 12% after so many years.
So in terms of Syngene numbers, I don't have the exact numbers, but I think the BMS numbers are a little over 500 in their dedicated center. And Baxter, I'm not exactly certain, but I think it is definitely over 100. As far as our Branded Formulations business is concerned, maybe I'll turn it over to Suresh.
So, thanks for your question. On the Branded Formulation business in India, we have around 850 field force. And on your second question on how will we ramp up. I think the plan is currently -- that it will be 2 ways. One is driving therapeutic leadership in oncology and metabolics. We have come some distance in the last 2 years through our new launches from our own internal stable in the coming years, and through in-licensing activity that is going on. That informs the basis of driving a critical mass for BFI in the coming years. I hope that answers your question.
Next question is from the line of Charulata from Dalal & Broacha.
Yes. My question pertains pegfil and trastu. Which are the other markets where you have received approvals but not yet launched?
A big market from a developed market perspective is clearly the U.S., where we received approval and not yet launch. In emerging markets for the reasons of competitive dynamics, I'm not at liberty to disclose publicly because that would basically alert competition in terms of where we are ready to launch.
Okay. Okay. And what would be your R&D guidance for '19 and '20?
I think we will continue to maintain our previously stated guidance of around 13% to 15% gross R&D spend, ex Syngene.
Okay. And CapEx?
CapEx, again, we've guided that it's going to be roughly INR 750 crores per year. We continue to have this kind of estimate for the next 1 or 2 years.
Next question is from the line of Prakash Agarwal from Axis Capital.
Just a clarification on what sir said on the market share. Was it 3% of the total market? Or is it excluding the [indiscernible] market.
I think excluding that.
Okay. 3%?
[indiscernible] MIS data, September IMS data. Okay, we don't have -- but I don't have a direct information on that. This is just [for team] information. So you can corroborate this.
Okay. Understood. And secondly, one more clarification on this Equilli revaluation that you gained. So this is largely on account of losing control and we have to revalue. So does this happen annually, quarterly, is it a function of - I mean what is the base of the current valuation?
Well, it is a one-time valuation, and it's because of loser significant influence that we had because changed to an investment, as an investment, and the fair valuation was done as of September when we had actually moved from a significant risky investment. This is a valuation that is conducted by Equillium. It is not the IPO valuation.
Okay. I understand the IPO valuation would be much higher?
No. Slightly higher. I think we indicated it's $32 million is the current value of our holding which is also roughly INR 200 crores. The fair valuation gain was INR 189 crores. The difference in - between [indiscernible].
And would this be annually accounted?
It will be quarterly fair valued. This investment will be quarterly fair valued and the difference will be carried through the balance sheet or ROCI, not through P&L.
So this is clearly one time?
Yes. One-time noncash exception.
Understood. Great. And lastly on the capitalized piece, which are the current assets, which are getting capitalized, and how do we see the R&D for next year?
I think Arun just answered on the R&D of -- that we continue to maintain at around 14%, 13% to 15% of [ sectioning ] revenues. As far as the capitalization is concerned, we continue to capitalize the bevacizumab, which is the biggest spend right now, and a really small portion of trastuzumab in the Glargine additional trials that we're doing in the U.S.
Okay. Are we breaking it down, the capitalized value for the assets?
No.
Next question is from the line of Prashant Nair from Citigroup.
Just one question on -- can you give any sense on the timeline for launch of Semglee in Europe?
I think Mylan in the previous call guided for launch by the end of 2018, and I think we're on track for that.
Next question is from the line of Surya Patra from PhillipCapital.
Just one more clarification. So did the approvals for the biosimilars like peg, trastu and the Glargine coming in Europe -- so do you really think this is -- or is it fair to believe that the revenue traction in the emerging markets will really surprise positively and much better? And that would be better than the European contribution in the near future?
I'm not quite sure whether there is a link between the 2 markets, because clearly, each market tracks to its own dynamics. And in the emerging markets, volatility in some emerging markets comes from markets which are tender-driven when sometimes they win some or lose some. But as far as retail markets and other markets are concerned, you will see a steady growth.
Okay. I was coming from the point that since the [indiscernible], trastuzumab itself, if you consider, it is almost equally distributed across U.S., Europe and ROW. So -- and the way the market has expanded in India, 4-star launch of the product hit the discounted price point, possibly, this similar scenario is possible in the emerging market as well. So from that standpoint...
No, I agree with you, that there will be an expansion of the market. [indiscernible] trastuzumab, but if you see the European markets for other biosimilars, which companies have launched. There has been a significant increase in access because of the lower pricing. Now this distribution that you talking about 1/3, 1/3, 1/3 in trastuzumab is both based on innovative prices and innovative sales. Clearly, that dynamic may look different on a biosimilar base because the pricing in different markets and the value in different markets will be different.
Okay. And a second, on the Sandoz association front, anything -- any progress so far that it is worth discussing?
Well, [indiscernible] earlier-stage assets, so they continue to make progress and as we've said before, they are yet to enter the clinic so they're still at an early stage. We continue to make progress on the R&D front.
And from our side, we are also contributing equally in a similar manner?
That's correct. It's a 50-50 share sharing.
Next question is from the line of Damayanti Kerai from HSBC.
My question will be regarding the broad market for biosimilars in the U.S. So we have now launched Fulphila. We -- and we haven't heard anything like [indiscernible] change coming on the market development as such regarding acceptance by the channel and all. So what would be your comment? Like are you seeing any changes, which is the, arguably, favorable for biosimilar acceptance in the U.S. in long-run? Or could you see more or less [indiscernible] we are not seeing much changes there?
This is Paul. Thanks for your question. I think as you've mentioned, there are various different dynamics going on in the U.S., and it's still evolving. I think earlier in the call, there was the contracting kind of challenges that some players have seen in those therapeutic areas at the same time there has been a lot of commentary from FDA about trying to reduce the role of middlemen in the supply chain and rebating -- changing things like that and some further commentary yesterday from -- or today, I guess, from the Trump administration on working on drug pricing. I think overall, there is a lot of factors in play. But clearly, the biosimilars are part of our -- are a part of the market that is trying to reduce the burden on the healthcare systems on the government and payer cost burden overall. And I think these changes in general should be supportive of biosimilars overall. I think biosimilars are clearly part of the solution in the long run.
Okay. So this, we have been hearing for some time now but the thing is as such we haven't seen any tangible announcements coming in the market or tangible changes in the market. So any expectation around that line, when we can see something probably to come from the government, which they can implement to increase adoption of biosimilars? I know like it's difficult to predict, but any thought over there would be helpful.
I think as Paul mentioned, I think there is an intention of the Trump administration to support biosimilars, and there are -- there have been statements made to the effect without a clearly articulated policy. But having said that, you also heard him saying that even in the biosimilars that have been launched, there is a now indication that there is improvement in acceptance. You just heard that Pfizer themselves have seen a 20% steady growth of uptake. So it tells you that things are going in the right direction. And I think these are early days in terms of biosimilars in the U.S. market, and you will likely to see a much greater acceptance going forward.
Next question is from the line of Nitin Agarwal from IDFC Securities.
We've done a phenomenal job with the first wave of biosimilars. So how should we look at life beyond that in terms of which would be our sort of second wave of new launches? And what should be a typical time lines for commercialization of some or all of our second wave of biosimilars?
So clearly, if you look at it, Biocon has been consistent in its belief in the biosimilar story and that consistency is shown by number one, the large portfolio of products that we have partnered with Mylan, where we've got like all about 10-odd products partnered with Mylan and we even expanded the partnership adding 2 more earlier this year. We also have a partnership with Sandoz as you know. We have not disclosed the number of products, but clearly, there are products there which add to the pipeline. And beyond this, we would be looking at developing products on our own as well. So from a long-term perspective, we would have a very healthy portfolio of biosimilars which will be developed in a prudent way based on what we believe are the likely market formation dates from an LOE perspective. So based on timing then roughly along with those times we will -- so we would -- we see a very healthy pipeline of products coming into the market. If you don't look at the Mylan portfolio itself, in addition to the 3 products where we've already received approvals in some major markets of the other either Europe or U.S. or Canada, Australia or Japan, clearly, we've made significant progress in the clinical services in the past, so that's the next thing to look forward to. Glargine approval in the U.S. is coming on. Our partners will be entering Phase III trials shortly. So clearly, we are making advancements there. And although the Sandoz program is at an early stage, I can announce the Sandoz partnership, we clearly say that from a timing perspective, they will develop opportunities which open up towards the middle of the next decade, whereas Mylan sort of address this opportunity in the earlier part of next decade. So clearly, there's a wave, and a sort of judicious approach to expanding capacity reflects that belief where, as we get approvals, as we expand portfolio and as we gain market share, we will be a dominant player in biosimilars.
In fact, I would also add by saying that as a company, I think we have one of the largest portfolios of biosimilars under development. And I think that should basically tell you about how committed we are to dominance -- or being a dominant player in biosimilars. So this is clearly a very, very differentiated strategy. No doubt it is a highly risk capital-intensive strategy, but it is actually beginning to play out for us positively.
And just to add to what Kiran said, the other differentiating factor if you look at some. It's not just about the size of the portfolio but the differentiated portfolio that we have in terms of different technology platforms. We have a large portfolio of antibodies, which, of course, many other companies also are pursuing. But we also have a large portfolio of insulins and insulin analogs. So looking at both baskets together and other recombinant proteins, we would have breadth as well as depth in our...
And a fully integrated model intact. Because another very big challenge in this whole biosimilars area is having the kind of global scale capacity, manufacturing capacity, to address these kind of market opportunities which not everyone has.
And just to add on to that, in your assessment how important is it in biosimilars to be in the first wave of launcher?
Well, it's obviously nice to be in the first wave of launches, but it's not so precipitous as in small molecules where there is significant value erosion between the monoclonal exclusivity and [indiscernible]. We have not seen that kind our difference yet, but it's early days. We don't know how the dynamics will change if there are, for example, 10, 15 players per molecule.
But the point is, making it in your assessment when you sort of project, you're doing your internal assessment on the future opportunities. I mean, at what stage -- I guess just theoretically or hypothetically, at what stage does the product doesn't start to become that attractive for you? I mean, in a sense, when you believe that you are the third or the fourth or fifth player or up to number 5, it doesn't really bother you that you're -- if you are still probably fifth player in the line to get approval, it doesn't bother you or asset #3 starts to become not an exciting proposition? Or is there some framework that you guys use?
Right now, I think you should understand that these are very early days of biosimilars. I think there are not too many players. So I think these are questions we will address at a later stage. Right now, you can see that there are very -- there is also a shakeout even at this early stage. You also heard certain companies say that they would like to sort of drop out of the biosimilar strategy, so it is not an easy area to be in. So these are early days yet, it is an evolving space. Obviously, we will look at our strategy as and when dynamics change, but at this point in time, we do not see this becoming an overcrowded space.
Next question is from the line of Harith Ahamed from Spark Capital.
Just one question from the balance sheet, which is on the other current liability, which I believe is the deferred revenues, and this number has increased by close to INR 300 crores versus March And just wanted to understand which products are this related to? And over what time period this revenue will get booked? And lastly, if this will be booked as licensing income or as part of product sales?
You were right, it's relating to the deferred revenue adjustment that we had done once we had to adopt the new accounting standard at the beginning of the year. The amount I think in the balance sheet is roughly INR 200 crores and this will be recognized over the period of time for 5 years to 7 years. It's booked in licensing [income for the] quarter. It was there in Kiran's opening remarks and number for the quarter was roughly INR 5 crores and it was a number in the first quarter as well. We will see is roughly INR 20 crores a year unwind every year for -- from this line.
We take the next question from the line of Sameer Baisiwala from Morgan Stanley.
Just a broader industry question. I think there is some studies in Europe, which was [trying] to biosimilar switch and which has -- which have been very successful, and I think that has accelerated the utilization adoption in markets like Europe, like the U.K. And I think now, biosimilar to biosimilar studies are also underway, and experience has been good that nothing happens if you switch the -- even the existing patients overnight into biosimilars. This situation is quite contrasting to what we have seen in U.S. at the moment, and I recognize it's 2 or 3 or 4 years behind Europe. But any such studies -- are they underway in U.S.? Or do you think anything that can be done from manufacturer's side to accelerate biosimilar pickup?
I think the European study that you're talking about were not sponsored by the companies involved. They were either the government or institutional sponsored study. If I remember correctly, I think one of them was done by a Norwegian government for the switching. As you know, the European healthcare model is very different from the U.S. healthcare model. It is a significant role of institutions like NHS and government funding of health care. So it was in their interest to do these kinds of studies early on. In the U.S., I'm not sure of the role of government in doing such studies, so to get private companies to do the studies would probably be linked to some sort of return on investment from these studies. So having said that, our assessment is that the importance of switchability depends on the therapy and the [indiscernible]. And so what applies for one kind of a therapy, say a diabetes or [indiscernible], they're not mostly applied to oncology or some other [indiscernible]. So largely therapy and in practice in order to [ concentrate ]. And clearly, switching from -- also de facto happen. If for example, there is a sudden change in formulary or coverage, which mandates the coverage, so they can be on switch for -- driven by payers, which is also sort of an indirect switch that can happen, either in U.S. or in Europe. It's very early, as I rightly said, to predict, which way -- all of these options are open and all of us are keeping our eyes wide open to see which -- what is happening everywhere. Because being first movers, there's an advantage, but there's also a first movers' uncertainty around which way it'll go. But we are prepared for either way.
Ladies and gentlemen, that seems to be the last question for today. I would now like to hand the conference over to Mr. Saurabh Paliwal for his closing comments.
Thank you, Janice. Thank you, ladies and gentlemen for joining us today. If you have any further questions or clarifications, please do get in touch with me. And we see you then the next quarter. Have a wonderful rest of the day.
Thank you very much. Ladies and gentlemen, on behalf of Biocon Limited, this concludes today's conference. Thank you for joining us. You may disconnect your lines now.