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Biocon Ltd
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Ladies and gentlemen, good day, and welcome to the Biocon Limited Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Ankit Gupta from Biocon Investor Relations. Thank you, and over to you, sir.
Thank you, Janice. Good morning, everyone. I'm Ankit from Biocon Investor Relations team, and I welcome you to Biocon's earnings call for Q3 FY '21. To discuss the company's business performance and outlook, we have today with us the Biocon leadership team comprising Dr. Kiran Mazumdar Shaw, our CMD; and other colleagues from the senior management team, both from Biocon Biologics and Biocon.I would like to take this opportunity to remind everyone about safe harbor statement. Today's discussion may be forward-looking in nature based on management's current beliefs and expectations. It must be viewed in concurrence 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 the end of this call, if you need any further information or clarifications, you can get in touch with me.Now I would like to turn the call to Dr. Kiran Mazumdar Shaw. Over to you, ma'am.
Thank you, Ankit, and good morning, everyone. Welcome to Biocon's earnings call for the third quarter of fiscal 2021.Let me first begin by wishing you and your families a healthy and prosperous 2021. As you know, 2020 has been one of the most challenging years humanity has faced. Countries, communities and businesses the world over have been tested on multiple fronts. And while the global scientific community stood up to the challenge of developing vaccines and therapies to control the pandemic, the damages caused to societies and economies have been devastating. Let us aim to reboot the world economy in 2021 now that vaccine deployment has been initiated globally, and let's hope that normalcy is restored.I will start this call with the main highlights of this quarter. Biocon Biologics has received $150 million of investments from Goldman Sachs and signed an agreement with Abu Dhabi-based ADQ for USD 75 million investment. These investments from marquee global investors validate our capabilities and is an endorsement of the scale that Biocon Biologics has built as a global pure-play fully integrated biosimilars company.Biocon Biologics has cumulatively raised USD 330 million in the last 12 months and has now achieved a post-money valuation of USD 4.17 billion. These funds will enable us to make prudent investments in R&D, high-quality manufacturing and establishing a global commercial footprint, and redemption of preferential shares invested by Biocon, which will be deployed to fund our generics business expansion.In our U.S. Generic Formulations business, we launched tacrolimus, a complex immunosuppressant capsule integrated with our own API. The Malaysian government has extended its contract with Biocon Biologics for 1 year to supply recombinant human insulin under its offtake agreement initiative.Syngene, our Research Services business, entered into a collaboration with 3DC, Deerfield Discovery and Development, for providing integrated drug discovery projects from early target validation to preclinical evaluation. 3DC has awarded 4 antibody discovery projects to Syngene in the area of oncology and autoimmune diseases.I will now present the financial highlights for Q3 FY '21. This quarter delivered a year-on-year revenue growth of 7%, wherein the total revenue increased from INR 1,753 crores last year to INR 1,879 crores in Q3 this fiscal. Our revenue from operations in the quarter stood at INR 1,851 crores, up 8%, mainly driven by Research Services, which was up 13%, and biosimilars, which was up 11%. We reported a muted performance in generics, which actually showed a slight degrowth of 3%.We recorded gross R&D spend of INR 183 crores this quarter, which is an increase of 18% over last quarter and corresponds to 14% of revenue ex Syngene. Of this, INR 171 crores is reported in the P&L, while the balance amount has been capitalized. This increase in R&D expenses is primarily due to higher spends in the development of our biosimilar pipeline and continued investments in novel programs and generic products.We also recorded a ForEx gain of INR 6 crores versus a gain of INR 15 crores last year during the quarter. EBITDA for the quarter was INR 427 crores, which was down 11% from last year. EBITDA margins stood at 23% against 27% reported in the same period last year. The quarter decrease in EBITDA margins is mainly on account of additional spends of INR 108 crores on R&D and employee costs. Core margins, that is, EBITDA margin net of licensing, ForEx and R&D, of course, stood at 31% compared to 34% last year. A lower EBITDA combined with higher depreciation and amortization resulted in PBT before exceptional items being 26% down to INR 236 crores. The net profit from continuing operations stood at INR 169 crores with a net profit margin of 9%.Let me now turn to a segmental review of our business. Firstly, our generics business. As mentioned earlier, this business reported a muted performance with a 3% degrowth over last year and revenues at INR 561 crores. The PBT margin for the quarter stood at 10%, down by 600 basis points over last year due to increased spending on employee costs, R&D and ForEx losses.Our API business, which did well in the first half of this fiscal, saw a subdued performance in the current quarter, and we believe that this was mainly due to lower offtake by customers, our inventory is coming back to pre-COVID levels compared to the temporary spike we witnessed during the peak of this pandemic.As mentioned earlier, we received approval for tacrolimus, an immunosuppressant used to treat organ transplant patients. This product bodes well with our strategy of developing a strong portfolio of complex Generic Formulations integrated with our APIs, and we believe this will augment our competitiveness in the generics market. We launched tacrolimus towards the end of December and expect a ramp-up in the coming quarters.Other approvals of our products are under review and, unfortunately, these were impacted by the deferment of inspections by the U.S. FDA due to COVID restrictions.As we look forward, we continue to invest in infrastructure, including at Vizag, and build a robust pipeline of technology-intensive molecules for future growth.When it comes to novel molecules, the novel business remains an essential strategic pivot in our journey as a global company known for pathbreaking research. Equillium, our U.S.-based partner, is making steady progress in Phase Ib clinical trials for itolizumab in the first in line treatment of acute graft-versus-host disease. And the overall Phase Ib topline data is expected to be announced during the first half of 2021. As you know, acute GVHD is a -- has a huge unmet need, and we believe that itolizumab is well positioned to address this need.Itolizumab, under the brand name ALZUMAb-L, has also been commercially launched in India for the treatment of cytokine release syndrome in moderate-to-severe acute respiratory distress syndrome or ARDS experienced by COVID-19 patients. We are progressing well with the already announced Phase IV studies in India and have enrolled more than 100 patients of the 300 required for the study. Under the emergency use, over 2,000 patients in India have benefited from itolizumab administration. We will also explore potential opportunities for this asset across other emerging and developed markets as an effective ARDS treatment.Now coming to Research Services or Syngene. Led by sustained growth across divisions, Syngene reported revenues of INR 585 crores in Q3 this fiscal, which is up 13% year-on-year. During the quarter, Syngene also expanded its Hyderabad facility and added capacity for an additional 90 scientists. Syngene has built strong business fundamentals around dedicated centers, discovery services and biomanufacturing. The way forward for the business is integrated discovery and development services, and this quarter alone saw 4 IDD projects for us. Syngene is well poised for sustainable growth in the future.Lastly, I will now come to our biosimilars business, which is housed under Biocon Biologics. I will start with the news by Dr. Christiane Hamacher, Managing Director and CEO, has stepped down from the Board of Biocon Biologics effective January 20. She will leave the organization on completing a 2-year term on February 28, 2021. Differences between Christiane and myself on key strategic matters have led to a mutually agreed separation agreement. The Board has appointed Arun Chandavarkar, former CEO and Joint Managing Director of Biocon Limited, as Managing Director of Biocon Biologics with effect from January 21, 2021, and furthermore, I will now assume the role of Executive Chairperson of Biocon Biologics where I was a nonexecutive chair. I believe that between Arun and myself, we will be able to bring the business back on a steady growth path. Turning to the business discussion. Our financial performance in Q3 has recorded a top line of INR 769 crores, a year-on-year growth of 11% and a 14% sequential growth. Our EBITDA margins during the quarter were 27%. Profit before tax stands at INR 111 crores in Q3 with 37% sequential growth. This financial performance is on the back of increased supply of Semglee for the U.S. market and a modest increase in market share of Ogivri and Fulphila in the U.S., despite the very challenging environment.Our products have continued to perform well in other markets, too. For example, Ogivri continues to be the leading biosimilar in Canada and Australia. We have also received approvals for biosimilar bevacizumab and biosimilar Aspart in Malaysia, where we have a direct commercial presence.We have also partnered with the Christian Social Services Commission to enable affordable access to insulins for diabetes patients in Tanzania under Mission 10 cents. The program will serve up to 10,000 patients over the next 2 years. We have several other discussions ongoing to broaden access to our products globally.On the regulatory front, biosimilar bevacizumab has received a positive nod from EMA for this product. There is a delay in approval, however, from U.S. FDA due to a site inspection, which has been on hold due to the ongoing pandemic. At present, there are no further technical data requests from U.S. FDA outstanding, and we have answered all questions received to date. U.S. FDA, from -- to date -- data requests from U.S. FDA is outstanding, and we have answered all questions received to date.As you might be aware, there have been similar issues faced by other companies, where the FDA has not been able to conduct site inspections even in the U.S.We continue to make significant investments into R&D, manufacturing and commercial infrastructure. I firmly believe that Biocon Biologics has been built on robust science and strong business fundamentals, making it a unique global integrated pure-play biosimilar player with several first-in-class achievements to its credit. While the long-term success of Biocon Biologics in the global biosimilar market remains unmatched, we believe that the impact of COVID-19 on our business across the value chain has not allowed the acceleration to be in line with our expectations.As we mentioned last quarter, we have been facing market-related challenges on the back of COVID-19 across the value chain. There has been a reduction in patient footfalls in hospitals due to lower -- leading to lower consumption, for example, pegfilgrastim market volumes in the U.S. were down by 7% in Q2 of FY '21. It has been more challenging for commercial teams to switch customers to biosimilars and enter new markets. Tenders have been delayed, among other reasons.Our internal operations, including R&D, manufacturing and commercial functions have also been slowed down. Our facilities are not running on full strength due to COVID-19-related safety measures. Procurement of some raw materials has taken longer than usual. It has been challenging to get shipments of finished products out on time. Resolving operational issues is taking more time given travel restrictions. Against this challenging backdrop, we believe that COVID-19 has dampened our ability to achieve our aspirational $1 billion revenue by 2022. We will reassess the time line required to accomplish this target after evaluating all possible opportunities once business normalcy returns.Having said that, we continue to believe that this is a short-term impact, not related to the overall biosimilar opportunity, and we reaffirm our pursuit to make Biocon Biologics a global leader in this large emerging business segment. We have seen healthy growth in the business over the last few quarters, but not the acceleration we were hoping for.We continue to develop a rich portfolio of biosimilar molecules, aggressively scale up manufacturing capacities and set up our direct commercial infrastructure in global markets. To conclude, we are confident that the fundamentals of our business and the biosimilars market remain solid, and we remain committed to delivering on the long-term growth potential.So let me conclude by saying that amidst the uncertainties and business environment challenges, our consolidated performance in Q3, led by Research Services and biosimilars, has relatively been better than the first and second quarter of fiscal 2021. We remain confident of the opportunities that lie ahead of us, and we are determined to deliver on our commitment to our partners, patients and all other stakeholders.With this, I would like to open the floor to question and answers. Thank you.
[Operator Instructions] The first question is from the line of Prakash Agarwal from Axis Capital.
Ma'am, on Glargine, nothing has been talked about. I mean we're at our 4-month kind of launch. Bloomberg data in terms of market share still shows under 1%. So what is -- I mean how are we ramping up there? What is the outlook for that product? Any color would be helpful.
Sure. I will get my colleague Shreehas to really give you more color on this thing because, as you know, it has just been launched in September last year. And maybe Shreehas, you would like to throw some light on that.
Thanks, Kiran. Prakash, Shreehas here. So as you know that we've launched Semglee at the end of the last calendar quarter of 2020 and Viatris, of course, has made comments to the offtake of this product, and they've expressed confidence that it's a long-term revenue...
There's a slight disturbance from your audio.
You might have to mute yourself.
Yes. Sorry, can you hear me now, Prakash?
Yes, sir.
Yes, sir. You may please go ahead.
Great. So as I was saying, our partner, Viatris, has already made a statement about this saying that we see a long-term revenue stream on this with a slower than usual ramp-up for these products. You've also seen that other similar products in the market in the first 12 months have had single-digit market shares and then as you get to formulary -- preferred or exclusive formulary status, the market share then substantially increases. We are quite confident about the way the U.S. market will shape up. It's a substantial market. And we see that in the calendar -- or fiscal '22, we believe that these numbers will favorably move in our direction.
Mr. Agarwal, does that answer your question?
What I understood is it will see a slower than usual ramp-up and it's calendar '22 is where you see the market share -- reasonable market share. Would that be correct understanding?
Yes. Yes. So I think, basically, this whole business is very much dependent on formularies and contracts -- contractual ramp-up. And this is expected to now start happening because this is a process-driven contract. So we believe that these contracts will be drawn up. And that is what, I think, Mylan has also shared. And once these -- once our product enters formularies, the ramp-up is likely to be much faster.
And entering formularies is a function of interchangeability? And when do we expect that?
So typically, entering formulary -- formularies is a matter of timing as well, Prakash. So as we get into the next calendar year and these will get opened up for review, we will see how those discussions will progress. And a favorable formulary coverage will certainly work in getting a higher market share in the next fiscal.
Okay. Great. And second question on bevacizumab. So here, we have clearly mentioned that we are waiting FDA, but if you could just give some color on the dialogue, if the dialogue is on. And have they given any time lines of the visit? Or given COVID, it is still uncertain?
So my colleague Sundar will answer this question.
Yes. Prakash, our conversation with the FDA has been pretty fruitful. And as we mentioned, all technical items now stands -- as of right now stands closed. There's no technical issues outstanding with the FDA. The only component is the COVID-related ability of the FDA to inspect our facilities at this point in time. And as -- when the FDA communicates with us, we will be ready to share that information with you at an appropriate time. At this point in time, we're waiting for the FDA to show up at our door and inspect us.
Okay. And lastly, on the IPO plans, are we still on track with 12- to 18-month time frame? Or there's a rethink there?
It all depends, Prakash, on how quickly things come back to normalcy. It's difficult for us to forecast that because, as you know, our business also has been hit by COVID. And we want normalcy to return as soon as possible. And as soon as normalcy returns, we believe that we'll be able to ramp up our business also in a much more accelerated manner. And that will help us to assess the timing of the IPO. But at this point in time, I just don't want to comment what the time line is, but we are still aiming to do this in the next 18 to 24 months.
The next question is from the line of [ Keshav Potta ] from [ Shilpa Financial ].
Only one question what I had is, currently on the manufacturing capacity of insulin, are we expecting any ramp-up? And what is the turnover we expect from insulin alone for next 2 years? If you can just give a tentative idea on that.
So as far as the capacities are concerned, we have, as you know, capacities in both India and Malaysia, and I think at this point in time, we have the capacities to support the businesses that we are addressing, both in the developed and emerging markets. And we believe that we are the only company, in fact, in the U.S. that has both vial and cartridge approval for Glargine. And of course, as you know, we are also focusing on the insulin 10 cents opportunity. So as far as all these opportunities are concerned, I think the capacities that we have right now are adequate to support the kind of business we are addressing. But looking forward, of course, we have plans for a Phase II expansion in Malaysia that will augment our capacity even further.
So can I have any numbers on this?
In which -- in what terms?
On turnover. So how much turnover we can expect for the next...
No, I will not be able to share that information, but suffice to say that it's a very large opportunity.
The next question is from the line of Damayanti Kerai from HSBC Securities.
My question is for Kiran ma'am. Ma'am, you're coming back on executive role and Dr. Arun taking the lead at Biocon Biologics. What will be your initial priorities? And which are the areas which you believe were earlier not addressed and you should be doing that for a better pickup in the biologic sales -- biosimilar sales?
So right now, of course, our focus will be on making sure that we focus on business opportunities in emerging markets in a very aggressive manner. We also are going to focus on cost-cutting and cost containment. As you know, costs have increased in a very high way. So we will be looking at some of these aspects of the business. And of course, the most important thing for us to make sure that our R&D pipeline delivers in a timely manner.
Sure, ma'am. And regarding the normalcy in operations, so we have seen impact of COVID on our business for the last few months. So at this point of time, we are almost reaching end of January. How much we are back on normal operations compared to, say, if there was no COVID? And how fast do you believe we can go back to normal operations?
So Damayanti, you know that some of the challenges that we have is all -- the issues are sort of associated with social distancing, zoning, et cetera, et cetera. Now in our Bangalore campuses, we are doing aggressive testing. So we are seeing that our test positivity rates are coming down, and that is helping us to actually get back to normalcy much faster. But it all depends -- and in India, in general, the numbers are coming down. And of course, we have started vaccination. So we are hoping that by the end of this fiscal, we should return to pre-COVID kind of levels of operations, setting us in a good position for next fiscal.However, in Malaysia, we have continued to be challenged because the Malaysian regulations around even one positive case is very, very stringent. So for instance, last -- in December, early December or late November, we actually had a few people testing positive in certain departments and those whole packaging departments needed to be shut down for at least 2 weeks. And that actually disrupted some of our releases, the product releases. So these are the kind of issues we are facing in terms of logistics and supply chain. But we believe that now that vaccination is starting to be deployed, let's hope that normalcy returns by the start of the next fiscal.
And my last question is regarding the formulary gain for Semglee. So if you can share more like what factors could help us in gaining formularies? And what are the challenges if a new player tries to gain formularies for their product in the market? So if some information about that, that will be helpful.
So my colleague Paul would like to maybe answer this question.
Yes. Sure. I think as Shreehas and Kiran both mentioned, there is a process of working through the formulary cycles in different parts of the market. There's a Medicare segment, there's a commercial segment, and PBMs have a role as well. And so there is a negotiation process discussion of the value that Semglee can add in the various context. And so that's the customer-by-customer process, and there is an annual cycle to these formularies with some other review processes during the year. And there are discussions going on. We do expect these to come on as we go through the year.
Sure, Paul. And majority of, I'll say, formulary contracts will be up for discussion next year, in calendar year 2022 or this year?
Yes. I mean, definitely, based on the timing of the approval of Semglee, there were formulary decisions that were already made for calendar 2021. But we do expect that there are some opportunities depending on the segment of the market and the type of customer. There are remaining opportunities in '21 and more opening in '22.
The next question is from the line of Neha Manpuria from JPMorgan.
Kiran ma'am, based on your comment that we will reassess the time line on the $1 billion target for biosimilars and the fact that we are focusing on the business opportunities in emerging markets, should I read into this as U.S. and Europe will probably not contribute or not see a significant ramp-up from here? Or let me put it this way, how should I look at the incremental ramp-up in the biosimilar revenue over the next year?
No, not at all. I think the U.S. and Europe will be pretty significant contributors to growth from -- contributing to this in a very important way going forward. But what we are saying is that a lot of the emerging market growth story was also baked into our $1 billion target. And that we have fallen short of during these last few quarters, which we believe we need to address in a very robust and aggressive way. So it's not about the U.S. and European growth story that we are really focused on. We are really also focused on the emerging market opportunity.
And now what impacted the emerging market opportunity? Was it purely COVID? Or do you think there were certain issues internally that we need to address, either by the way of logistics or capacity at the Biocon end?
No. I think we have also mentioned that a lot of the emerging market is dependent on tenders. And I think a lot of these tenders have been delayed in the sense that I just mentioned that when you have COVID, most -- even we benefited from that. For instance, the offtake agreement was extended by a year. Normally, it would have been again brought back to a bidding process, but we -- this was extended. So most governments are preferring to extend the tender contracts rather than opening up new tender contracts during COVID. That has actually affected us in a big way. So we expect all this to open up, and that will help us to build this business very aggressively.
And on the margin trajectory for Biologics, as the revenue ramps up, when should we expect inflection in the margin profile of the Biologics business? Or do you think that will probably be lower than the revenue ramp-up because of the investment?
No. I think if you've seen our numbers in the past, it's all linked to a very good revenue line. And today, I think we can get back to those margin numbers if our revenues are much higher. So it's all about economies of scale. It's about getting much higher revenue lines, and that basically falls to the bottom line quite fast. So I think that's what we are really looking at.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
If you could help us understand the split of the Biocon Biologics into MoW and developed for the quarter. I recollect when we had the earlier whatever $1 billion target, it used to be a 60-40. Now hearing your commentary, Kiran ma'am, I'm just trying to see what should be -- where do you think this will now change, right? Forget the $1 billion target. Looking at your efforts to improve emerging market contribution, how should we look at that, right? And is the profitability -- since it's more tender, like you're saying, should we now kind of structurally expect lower margins for the Biocon Biologics subsidiary?
No. Our estimate for this -- the $1 billion composition of developed and emerging markets remains the same. I think you should look at the 60-40 split. I think right now we've just gone through a little bit of a blip where the business has been affected by a contribution from the developing markets or the emerging markets in a way that brings down the top line significantly. So I think that's what has affected our performance.
Got it. Second question is on the agreements with Mylan and Sandoz. Are we in any way -- maybe some of them are [ on track ], but just trying to understand from a forward path perspective, are things changing in the way we would be dealing with the partner?
No, not at this point in time at all.
Got it. Got it. And my third question is on the generic business. We have had certain operational issues like you highlighted, but just wanted to get some comfort. It's been starkly different to how the rest of the guys have performed both on formulation and API. So if we could get the split of API and formulations like we do every quarter. And has there been any divergence in those 2 businesses for the generics, please?
Shyam, the split remains to be like in the previous quarter, 80% revenues coming from API and 20% from formulations. The operational challenges -- I think more than the operational challenges, what we said is that we saw a good H1 because when the pandemic had just hit, there was a lot of supply chain disruption, especially in China. A lot of our customers bought additional inventory to ensure that they are not out of stock on their formulations. Now we are seeing normalcy and the inventory level is going back to pre-COVID days.So our API revenues have actually come down this quarter compared to the run rate in the first 2 quarters. And on the formulation side, we are looking at -- that as a growth driver, but we also -- where we face challenges was that FDA -- we have a couple of products under review, which we could have launched had FDA visited and inspected our facilities. And we have received either information request or CRM. And no other pending matters are there, just the facility has to be inspected. And hence, we cannot launch these products.So we -- fundamentally, the growth, as we have said in the past, will come on account of our formulations, and the API will start showing growth once we have our new immunosuppressants facility, which we are creating in Vizag, being qualified, which will take anywhere between 12 to 24 months.
Got it. Siddharth, the last question on CapEx. Are we reevaluating CapEx given probably delay in some of our approvals? If you can just highlight us or the updated CapEx outlook?
Well, fundamentally, there is no change in terms of the CapEx projects we are going to invest in because those are essential for our growth for all our businesses. And the timing might get deferred a bit. We've also seen some of our existing CapEx projects delayed because of COVID by 3 to 6 months. But in terms of overall guidance we have given at group level, it might just get deferred by a year or so, but not going to get reduced.
And as you know, most of our CapEx in our Biologics business has been already invested. So we have very little CapEx to really invest in apart from the fact that we will look at the Phase II investment in Malaysia in the near future.
The next question is from the line of Nithya Balasubramanian from Bernstein.
My question was on the price erosion that you're seeing in biosimilars in the U.S. So if you look at CMS data, we're actually seeing prices erode almost 10% every quarter the data is published. So is it trending along expected lines? Is it higher? Any thoughts on how this is likely to shape up in the future and the impact it's likely to have on Biocon's gross margins.
I think, Nithya, this is in line with expectations. I don't think this is anything which is out of line. So I think we have baked this all into our projections and our calculations. So I don't think we are concerned about these kinds of price discounts that you're talking about. And we believe that this is a market that is still very nascent at this point in time. I think there are very large opportunities. And I believe that Biocon Biologics is well poised to really sort of capture a large part of this market going forward. I think Viatris also remains very confident. It's -- we've had a temporary setback because of all the challenges I spoke about. But once normalcy returns, we believe that we will be far more aggressive.
If I may just ask a follow-up on that. But do you see a bit of a short-term stress because your older products in the market, pegfilgrastim, trastuzumab, Semglee are likely to continue to see price erosion. But your newer products, unfortunately, are delayed because of the pre-approval inspection delays. So is there likely to be a few quarters of stress?
No, I think we mentioned that the ramp-up of Semglee is likely to take us into the next fiscal because, as you know, this is a very formulary-driven business. So I think getting us into those formularies is a process-driven activity. And therefore, we need to get into those formularies which Viatris is already working in. And as you remember, we've just launched the product only a few months ago. So I think it takes time to really get into those formularies, and that's why I said that the ramp-up will only start happening next fiscal. Right now it's kind of the early entry into the market, which has been very well received, by the way.And therefore, we believe that the ramp-up next fiscal onwards will be very good for us. And going forward, because we have a very comprehensive portfolio of products in the offing, as you know, Aspart also has received a positive nod from EMA, from CHMP, and we expect the U.S. FDA also to approve this product during this calendar year, we think that we will have a very comprehensive product offering in the insulin segment. And I think you also are aware that Biocon also has a recombinant human insulin, which it is pursuing with the U.S. FDA, which will also come into play in the next calendar year. So I think with all this, we are very, very positive and confident in the way we are going about the insulin segment.
If I might throw another quick one. On Copaxone and your generics business, any update on whether you've refiled? And what is the progress on that CRL?
We're working on responding to the CRL. We expect to respond over the next few months.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
Kiran, is it possible for you to talk about your pipeline beyond beva and Aspart. I remember, earlier, the expectation was that there would be 3 more launches in fiscal '23 to '25 time frame. So any color would be very useful.
So Sameer, what I'd like to do is as soon as we enter the clinic, which is going to be very soon, as soon as we do that for several of our products, we will let you know because at this point in time, I would rather not comment, but maybe I'll give you some kind of inkling that we have at least 3 programs, which should be entering the clinic very soon.
Okay. No, this is very useful, Kiran. And would these 3 be all the Sandoz-partnered products? Or any of these would be your solo product as well?
I cannot comment on that, Sameer. Please be patient.
Okay. No problem. Yes. And just on the Semglee comments for the U.S., are all the comments equally applicable for vial form and the pen form? Because for vial, you are the only player in the markets? Or are you getting any advantages over there?
I think this is a question that Mylan should answer, but certainly, it should give us some advantage, but I think I would defer to Mylan to answer that question.
Okay. And then what are the low-hanging fruits for the emerging markets?
I think we have a large number of opportunities. For instance, we've just been approved -- our trastuzumab and Glargine have just been approved in Saudi Arabia. We have had pegfilgrastim approvals in a few of the developed markets. And I think there are a number of regulatory approvals that we've got in several markets, which now become low-hanging fruits for us. And as you know, these are big markets.
The next question is from the line of Harith Kapoor from Spark Capital.
This is Harith Ahamed from Spark capital. My question is in the context of Christiane's departure and other changes you've announced at Biocon Biologics. So over the past 18 months, significant time and effort have gone into giving Biocon Biologics a separate structure, a separate leadership team. You've announced a potential IPO and a $1 billion sales target for FY '22. So in the context of Christiane's departure and other changes, will there be a disruption to some of these efforts? And then this abrupt change in leadership, how much of an impact it will have on some of these initiatives that we've started over the last 18 months?
So let me answer this question in 2 ways. One is, of course, the fact that we don't see any abrupt disruption of leadership because we are actually seamlessly transitioning to a very old and mature leadership between Arun and myself. We understand the business very intensely. And so I don't expect there to be any disruption in leadership. We are looking at the global business and how it is being approached. And obviously, like I mentioned earlier on, we are very committed to bringing back growth. As you've seen, the acceleration of growth is not at the level it should be. And therefore, we want to really make sure that we get back to that kind of accelerated growth path. And that is something which Arun and I will be very focused on in addressing.So we don't see any disruption in what we are doing and all the efforts because, as you know, this is a very R&D-driven effort, and it's a very commercial-driven effort. And most -- we have 2 parts to our commercial strategy: one that is being directed by Viatris and one that we have control over in our own emerging markets. We will be, obviously, making sure that we focus on unlocking all the business potential from our emerging market opportunity. And we will, of course, work closely with our partners to make sure that we also get maximum benefit from the developed markets. So I for one don't see a disruption in either leadership or our strategic intent. And I feel very confident that because of very strong business fundamentals, we've seen a temporary setback from COVID, but I'm very confident that even though we may not hit the $1 billion target by FY '22, we still remain very committed to see how quickly we can actually address that $1 billion target.
My second one is related to my first question, and sorry for pressing a bit on this point. My question is, given the nature of the biosimilars business and given the global nature of the business, how important is it to have someone with a global biopharma background to lead Biocon Biologics eventually? I understand the company is in safe hands for now. But eventually, would you be looking at a CEO who comes with a global biopharma background? And in the context of this abrupt departure of Christiane, would it make it -- would it be difficult for you to attract global biopharma talent into a CEO level at Biocon Biologics? Your comments on that, please.
Well, first and foremost, I think the biosimilars business is very different to a biopharma business, which is being driven by the innovator companies. As you know, this is a very, very different business. So I don't think it is necessarily true that you need a big pharma person to come and run this business. So I think these are some of the things that we are looking at. And we will, of course, take the right decision at the right time. At the moment, we believe that we understand the business very well. We understand the challenges. We understand the competitiveness of this business. And we will address it and take the right decisions to make sure that the business really performs very strongly.
The next question is from the line of Tushar Manudhane from Motilal Oswal.
Just would like to know on the Insulin Aspart side also, will it -- is the site already inspected or will it come under inspection as a part of review?
My colleague Sundar will answer this question.
So as you know, we are currently under the review with the agency, and the review is going very well. When the agency lets us know of the site inspection at an appropriate time, we will come and inform you of that as well. As with all programs, regardless of whether they are located outside the U.S. or inside the U.S., the agencies, as they come out of COVID, they will start inspecting the facilities as well. PAI is part of -- prior approval inspection is part of the approval process and, therefore, we anticipate that the agency will come and inspect the facility at some point in time within the review cycle.
Got it. And just secondly, in terms of this formulary and then subsequent contracts, sir, typically, these contracts renew at what frequency and when in the part of the year?
Paul, will you take that question?
Sure. This is -- yes, Paul here. There is -- typically, there's a primary -- primarily, there's an annual formulary cycle of new formularies launched in January of the year, but there are midyear reviews and something like Medicare has more rigid time lines and fixed time lines, whereas commercial formularies have some more flexibilities. But it's overall an annual process with some midyear reviews.
The next question is from the line of [ Ritesh ] from Nippon India.
Yes. My questions have been answered. Thank you.
The next question is from the line of Manoj Bahety from Carnelian.
I have a couple of questions. First one is, Sid, these are early days for biosimilars considering the large opportunity ahead. Just wanted to understand the emerging competitive landscape. Basically, I just wanted to understand whether innovators' reactions in terms of biosimilars coming to the market, in terms of the pricing reduction. And also in this like, if you can give some color like $1 billion aspiration vis-à-vis some kind of like -- sacrificing some kind of margin. If you have to take that call, how do you see this? Whether this $1 billion kind of aspiration will come at the cost of some margin.
Excuse me, sir, I'm so sorry to interrupt, but your audio is not clearly audible, sir?
Yes. But I think I've understood what he's saying. I'll answer it as follows. First and foremost, you are right, these are early days of biosimilars. And obviously, like it happened in the case of generics, obviously, originators are going to react and respond aggressively by trying to basically prevent biosimilars from basically encroaching their market share. So they will start reducing their pricing. However, we believe that we -- biosimilar companies like ours, which are pure-play biosimilar companies, are very, very aware of these kind of pricing aspects of the business. And we have already baked in many of these assumptions as to how much the discounting could be to reach our $1 billion target. I don't think any of that will really change substantially. I think what you need to really focus -- unfortunately, COVID came and stopped us in our tracks. If it hadn't happened, I think we would have seen a much faster ramp-up and a far greater accelerated pace of growth.In terms of competition, yes, we do anticipate competition from other players in the coming years. But as you know, early movers do have a great advantage of getting higher market share, and that's what we're really focused on. And as soon as the COVID crisis is over, the strategies that we had actually developed for gaining greater market share will quickly kick in. So I don't think you should really view this $1 billion opportunity as a commoditizing opportunity. I think we have baked in a lot of the pricing that we expect over the next 5 years. We have actually baked in a lot of the costing advantage that we have, and we have baked in the kind of margins we can realize based on the pricing that we have actually worked out to compete in the marketplace.
Great. I have another question. If you can help this dilution -- overall dilution of Biocon Biologics, which may happen or to suffice the growth aspiration of Biocon for next 3 to 5 years, including the IPO.
I don't understand.
See, my question was just overall dilution which shareholders can expect in Biocon Biologics Limited with private equity as well as with the prospective IPO which we are targeting, which -- whether it will be a kind of 20% or 25%, maximum dilution which will suffice our growth aspiration.
I understand what you're saying. So I think we expect to go down to 75%, for sure, when we go for an IPO, okay? Right now, we are at around 90%. So I think going forward, we have obviously factored that we will have to minimum reduce to 75%. As you know, in a company like Syngene, we are at 70%. So I think that's the kind of ballpark you can look at.
The next question is from the line of Bharat Sheth from Quest Investment.
Kiran, just want to get your sense, entry into China with now Mylan, I mean, already forming a new company with Upjohn and who have a presence in China. So how that will really play out for us in the coming time?
You're absolutely right, Bharat bhai, that it's a big opportunity for Biocon, not just in biosimilars, but also in generics. And I think Mylan is well positioned through Upjohn to basically get an entry into the Chinese market. And I think they are looking at this opportunity very seriously. And as soon as we get some regulatory color on how soon that can happen, we will certainly share it with you.
Do we expect that somewhere in FY '22, I mean, first half or second half, that could be a probability?
I would say it's a very large medium-term opportunity. I don't think I can call it as a next -- this fiscal or next fiscal opportunity. It might happen, but I think we are looking at it as sort of a medium-term opportunity, which is like 3 to 5 years.
And what is the potential size for our, I mean, addressable business?
In China?
Yes.
It's -- right now we really can't assess it in an accurate way, but the Chinese market itself could be a $1 billion opportunity.
The next question is from the line of Mitesh Shah from ICICI Direct.
My question is regarding the generic APIs. So basically, a part of the COVID challenges, can you see the increase in the competition, especially from the -- China is back in the market?
Well, right now, we don't see -- I mean in the short term, we don't see any major change because to qualify our new source is not easy. It's time-consuming. So we don't -- I mean all the customers that we have, either they have 1 or 2 options because they qualify 1 or 2 sources in their ANDA, and then they buy from these 1 or 2 sources. And fundamentally, we have not seen any market shift where either customers who have been buying from China have started buying from India or vice versa. I mean there was, obviously, some bit of rhetoric in between when COVID had just started where people were looking at derisking from China and kind of sourcing from India.But we -- that time also, we believed that this will be temporary, and once the pandemic is kind of nearing an end, things will return back to normalcy. I mean, again, India does not have that large infrastructure on API manufacturing. The costs are higher. The regulations are quite stringent. To have a structural change, it's going to take long time. And we know the Government of India is working in bringing a lot of scheme and focus on local manufacturing. But again, these things will end up taking time.
Got it. And my second question is regarding the $1 billion target of the Biologics. Assuming the next year would be a normalized year, so is it fair to assume that our target would not be postponed more than 1 year?
Yes. You're possibly right.
The next question is from the line of Shrikant Akolkar from Ashika Stockbroking.
I would like to know, based on the discussion with the FDA, have you received next review date for bevacizumab?
The inspection hasn't been announced yet. And so once we get a clarity on it, we'll be happy to share them.
Okay. And we also have a couple of more biosimilar products. So are we expecting any delay on those, for example, insulin Aspart rh-insulin?
At this point in time, no. We are on track, and things look as stated before. At this point in time, no.
Okay. Okay. And on the small molecules business, last quarter, we had said that our capacities are running at full utilization, but now that inventory is going back. So how should we look at the growth rates going forward, at least for FY '22?
I think I had mentioned earlier and even in the past that for our API business, we expect a mid-single-digit growth levels. And for our formulation, we expect growth in high-teen levels. On an overall basis, for the segment, we will look at a growth between 5% to 10% over the next 1 to 2 years. As we've also stated in the past that we are rebuilding this business, our focus obviously for the last many years was on biosimilars business. And as we start to reinvest in this business in terms of the pipeline and the capacity, it will take time. There is -- the rebuild takes a couple of years. And we should start seeing good growth starting in next 2 years or so.
Okay. And last question on the Generic Formulations. If you can share some -- market share of some of the -- our products would be -- would help us.
Yes. So we have currently 4 products launched. We've recently launched tacrolimus. Again, it's very early days. It's a similar story as Semglee. We need to gain formularies and the contracting cycles all start this year. But the 3 products that were launched earlier were the 3 statins: atorvastatin, rosuvastatin and simvastatin. And for all the 3 statins, our market shares are between 15% to 20% in the U.S.
The next question is from the line of Nithya Balasubramanian from Bernstein.
A very quick one. Just wanted to understand if there are any updates on the interchangeable file that you have placed at the U.S. FDA for Glargine?
Nithya, we actually had a very productive meeting with the FDA, and we are fairly optimistic and actually confident that we're going to secure that designation fairly soon. The meeting went very well with the agency.
Can you guide us on when you're expecting -- is there a TAT date or any particular date to watch out for?
We don't have it just yet. But once we get clarity on that, we will get that across to you. Yes.
And would this require a pre-approval inspection because this is a site that's already been inspected?
Yes. So at this point in time, the agency hasn't communicated that this transfer requires an inspection. And so far, we are fairly confident that it's going to come fairly soon. Yes.
The next question is from the line of Charulata Gaidhani from Dalal & Broacha.
My question pertains to the biosimilars, excluding insulin. When do you see a market share ramp-up? Because in case of pegfilgrastim, there was an approval from Express Scripts. So we expected a ramp-up from 2021. So how is that placed in the current situation? And secondly, I wanted to know the loss on Malaysia.
Sorry, Charulata, we missed the last question. Could you repeat that?
Whether the Malaysia breakeven has happened? Or is that also delayed?
I'll answer the second question first. And Paul, if you could chip in on the increased market share. Charulata, so quarter-on-quarter, we have not [ broken even ]. It's still a loss, but we expect Q4 and FY '22 will be in positive territory for Malaysia.
And on the others, on the oncology, I'd say, in that institutional market, the role of a PBM formulary like Express Scripts is not really material. It's not very relevant in that market. So I wouldn't really look at that. But what I would say is that the shares for both of those products have been holding quite firmly in the face of competition. [indiscernible] happy about and [indiscernible] we've seen some gains. And with -- we've seen a recent week up to 9%, around 7%, those ranges. And so that continues to grow. Viatris continues to hold a strong position and add new customers. So I think this will continue over time across segments.
Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Ankit Gupta from Biocon Investor Relations for closing comments. Over to you, sir.
Thank you, everyone, for joining us today. We look forward to seeing you in the next quarter. If you have any follow-up questions, you can reach out to me anytime. Have a good day and thank you, once again.
Thank you. Ladies and gentlemen, on behalf of Biocon Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.