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Biocon Ltd
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Good morning, ladies and gentlemen. Welcome to the Biocon Limited Q4 FY '19 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Saurabh Paliwal from Biocon Investor Relations. Thank you, and over to you, sir.
Thank you, Liz Ann, and good morning, ladies and gentlemen. I am Saurabh Paliwal from Biocon Investor Relations team, and I welcome you to today's earnings call for the fourth quarter and full year of fiscal 2018-'19.Before we proceed with this call, I would like to remind everyone that a replay of today's discussion will be available for the next few days, about an hour following the conclusion of this call. The call transcript shall be made available on our website in the coming days.Moving along, to discuss the company's business performance for this quarter and the year and also potential outlook, we have today with us the leadership team at Biocon, comprising of Dr. Kiran Mazumdar-Shaw, our Chairperson and Managing Director, and other senior colleagues from the management team.I would like to take this opportunity to remind everyone about the safe harbor related to this call. Today's discussion may be forward-looking in nature based on management's current beliefs and expectation. 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. Post the conclusion of the call, if you have any further questions or need any clarifications, please get in touch with me.With that, I would like to hand the call over to Dr. Kiran Mazumdar. Over to you, ma'am.
Thanks, Saurabh, and good morning, everyone. I welcome you to Biocon's earnings call for the fourth quarter and the fiscal year-end 2018-'19. I would like to start with some key announcements for the quarter. Dr. Christiane Hamacher has been appointed the CEO of Biocon Biologics and has been entrusted with the responsibility to lead the biosimilars business and transform it into a major global player in Biologics. Dr. Hamacher comes with more than 20 years of leadership experience in both strategic and operational roles across the value chain in the global pharma sector, spanning Asia, Europe and the U.S., with leading multinational pharma companies. Our partner, Mylan, commenced commercialization of biosimilar trastuzumab under the brand name Ogivri in Europe.Syngene, our Research Services subsidiary, announced the opening of its Centre for Advanced Protein Studies, set up in collaboration with the Biotechnology Industry ResearchAssistance Council, or BIRAC, at Syngene's campus in Bengaluru. The 2,000-square feet center hosts a state-of-the-art GLP-accredited analytical lab which will be available to BIRAC-funded start-ups, SMEs, MMEs and academia in India at an affordable cost. The center will run under the Innovate in India program of the National Biopharma Mission, Department of Biotechnology announced by the government of India. To commemorate the 40th anniversary of Biocon, the Board of Directors of the company at the meeting held yesterday recommended the issue of 1 bonus share for every 1 share held in Biocon. The board also recommended a final dividend of INR 1 per share prebonus for FY '19. Furthermore, I am extremely happy to say that as a part of our $1 billion aspirational revenue guidance for FY '19, 3 of our strategic business segments, namely Small Molecules, Biologics and Research Services, either met or exceeded their targets. We could not meet our consolidated $1 billion revenue guidance as our Branded Formulations fell short given the external and internal challenges faced by the business.Moving on, I will now present the key financial highlights. I will first discuss the highlights for the quarter followed by the highlights for the year.Total revenues for the quarter was up 26% at INR 1,557 crores. Revenue from operations stood at INR 1,529 crores in quarter 4 which grew 31%. From a segment perspective, the Small Molecules segment was INR 472 crores for Q4, up 11%; the Biologics segment revenue grew 87% to INR 451 crores; Branded Formulations sales were INR 133 crores, down 11%; while Research Services grew 30% and registered 400 -- INR 534 crores. Gross R&D spend was INR 166 crores for this quarter which corresponds to 17% of revenue ex Syngene. Of this amount, INR 92 crores is reported in the P&L, while the balance amount has been capitalized. The R&D expenses this quarter are higher on account of higher expense in ANDA programs. The impact of which is reflected in Q4 segment margins for Small Molecules. We booked a ForEx loss of INR 7 crores as compared to a gain of INR 42 crores last year. This loss is reflected in other expenses in the profit and loss statement. EBITDA for Q4 stood at INR 431 crores, with EBITDA margins at 28% compared to 24% last year. EBITDA margins have increased despite a much higher R&D spend and a net negative ForEx impact, thus reflecting a very strong operating performance. Core margins, that is EBITDA margins net of licensing, impact of ForEx and R&D, stood at 34%, which is up from last year's 26%.Net profit for the quarter was INR 214 crores, a growth of 64% over Q4 last year on account of improved operational performance. The effective tax rate of 14% for the quarter is lower than last year's 21% on account of tax benefits on R&D, including additional CapEx and offsets of profits in the U.K. entity against carryforward losses from prior years.Now coming to financial highlights for FY '19. Consolidated revenues for the year were INR 5,659 crores, up 31%. Revenue from operations were INR 5,514 crores, which grew 34% compared to last fiscal. This includes licensing income of INR 25 crores as compared to INR 23 crores last year.From a segment perspective, the Small Molecules segment revenues were at INR 1,773 crores, up 18%. Biologics revenue doubled to INR 1,517 crores; Branded Formulations revenue grew 7% to INR 656 crores; while Syngene revenues were at INR 1,826 crores, up 28%.We incurred a gross spend of INR 480 crores on R&D this year, corresponding to 13% of revenues excluding Syngene. Of this amount, INR 290 crores is reported in the P&L while the balance amount of INR 190 crores has been capitalized. This amount relates to biosimilars and insulin development expenses. R&D expenses increased in FY '19 on account of higher spends on biosimilars as well as the ANDA programs. For the full year, we booked a ForEx gain of INR 28 crores as compared to INR 83 crores that was recognized the previous year. EBITDA was at INR 1,538 crores for the year, up 49% with EBITDA margins at 27% benefiting from better operational performance. Core margins, that is EBITDA margins net of licensing, impact of ForEx and R&D, stood at 32%, up from 27% the previous year. Reported net profit for the year stood at INR 905 crores, which includes certain exceptional items. Adjusted for exceptional items and associated tax, net profit for the year was INR 729 crores, a growth of 96% year-on-year with net profit margins at 13%.The effective tax rate for the full year, when excluding exceptional items, stood at 19%, which is lower than the previous year's 26% due to availment of R&D incentives and benefit of carryforward losses we had in our U.K. entity as previously commented upon.Now coming to reviewing business segment performance for the full year. Small Molecules recorded 18% growth and -- on account of APIs as well as a ramp-up in our Generic Formulations business which completed its first full year of commercial operations. Higher volumes and pricing stability for statins and immunosuppressants led the growth in API sales, while Generic Formulations business recorded robust growth, albeit from a small base due to new product introductions in the U.S. market. We successfully commercialized atorvastatin and simvastatin formulations in the U.S. and recorded market share gains in the previously launched rosuvastatin formulation. More launches are expected in the next 2, 3 years which cumulatively are expected to provide revenue growth visibility in this segment.Coming to Biologics. FY '19 has been a landmark year as it crossed the $200 million revenue milestone this year. Our biosimilars strategy has begun to deliver with the start of monetization of our biosimilars pipeline in the developed markets of U.S. and EU. The launch of biosimilar pegfilgrastim in the U.S. and the ramp-up of sales of our biosimilar trastuzumab in emerging markets were the main contributors to this growth. Other notable highlights include the launch of biosimilar insulin glargine, biosimilar trastuzumab and in-licensed biosimilar adalimumab by our partner Mylan in Europe. Higher revenues, including impact of profit sharing in both developing and emerging markets, offset higher R&D and fixed costs, leading to significant improvement in our quality of earnings, not only in the Biologics segment but also at a consolidated level. The segment PBIT for Biologics improved from a negative 2% last year to 26% in FY '19, reflecting a very strong performance over last year.Now coming to Branded Formulations. This was muted largely on account of a decline in our UAE business. Metabolics, Nephrology, Critical Care and Market Access divisions were the key growth drivers for the India business. Key brands like Insugen, Basalog, Erypro, Tacrograf and Psorid reported strong double-digit growth. The UAE performance for the year was impacted by uncertainty in the local markets, including delays in drug registration with the local health authorities and repricing of branded generic products mandated by the Ministry of Health. On a more positive note, though, we launched our first biosimilar trastuzumab under the brand name Canhera, which is aimed at providing an affordable treatment option and increasing access to this medicine population suffering from breast cancer. The launch of Canhera represents our second biosimilar launch in the UAE market, initially having launched biosimilar insulin glargine under the brand name Glaricon.Research Services or Syngene had a very strong performance during the year, driven by robust performances in both discovery services and dedicated R&D centers. During the year, Syngene further expanded its customer base as well as its existing client relationships. The expansion of ongoing strategic collaboration with Baxter also led to the commissioning of additional infrastructure for them.Coming to some product development updates. When it comes to biosimilars, the global development programs for both biosimilar bevacizumab and insulin aspart are progressing well in Phase III clinical trials. In terms of novel, our Phase Ib/II trial in acute graft-versus-host disease with our novel asset itolizumab was initiated by our partner Equillium, who has licensed our novel anti-CD6 monoclonal antibody for development in U.S. and Canada. Equillium has been awarded Fast Track and Orphan Drug designations for the molecule in both prevention and treatment of graft-versus-host disease -- acute graft-versus-host disease by the U.S. FDA.Now coming to outlook. In the coming fiscal, we expect the growth momentum across our business segments to continue, led by higher biosimilars revenues. While we expect core margins business to sustain R&D expenses across our business segments and the -- I'm sorry, whilst we expect our core margins percentage to sustain, R&D expenses across our business segments as well as depreciation are expected to significantly increase. Furthermore in FY '20, our investment in human capital will also significantly increase on account of setting up an organizational structure to support independent functioning of our biosimilars business under Biocon Biologics, and we have also set up a Boston-based subsidiary, Bicara Therapeutics, to support our immuno-oncology programs which have been pursued under our novel programs. We expect these investments to all go well in pursuing our ambition of enabling access to affordable biologic therapies to patients worldwide, whilst establishing Biocon as a leading global player in biologics.With that, I'd like to open the floor to questions and answers. Thank you.
[Operator Instructions] The first question is from the line of Prakash Agarwal from Axis Capital.
Congratulations on good numbers. Question, ma'am, on the R&D outlook. So we have seen a constant jump and that's the lifeline for any pharma company, but how do we look forward on the R&D side, both at gross level and at P&L level?
I will give you a sort of a broad guideline to basically look at R&D expense as being roughly 15% of our revenues ex Syngene.
Ex Syngene? Okay. Got it.
Yes.
Okay. So and this is more so for fiscal '20 guidance?
Yes. And this will, as I said, it's going to cover both biosimilars and our ANDA as well as our novels program.
Okay. And this is revenue P&L, I mean, passing through the P&L, 15%?
This is gross...
This is gross. But there will be a certain amount capitalized, depending on which part of the program expenditure pertains to our biosimilars.
Understood. And secondly, clarity on the comment you made that we expect to sustain core EBITDA margins, and you defined core EBITDA margins ex of R&D. So with the growth momentum across business segments and even in biosimilars, wouldn't it be fair to assume that EBITDA -- core EBITDA margin would actually improve [ or sustain ]? What are the things we should keep in mind?
So I just mentioned that we are going to see, of course, increased R&D spends. But remember, we are also investing in CapEx which is also likely to see...
Prakash, I think you have to look at the core EBITDA margins already increased 800 basis points compared to last year in FY '19, and a large part of that was driven by increased contribution from biosimilar. And what we are saying is in spite of increased expenses like was mentioned in the call previously in the staffing costs and other expenses, we expect the core operating margin -- our core EBITDA margins to be sustained at the FY '19 levels.
Okay. Understood. And lastly, one comment on the transfer of equity in Biocon Biologics to Biocon India Limited. So what's the rationale there? Is the -- I mean, the money-raising plan going to happen from India level? Or what's the broad part there?
Yes, so I think we had -- we are kind of looking at consolidating our biosimilars business under Biocon Biologic India Limited. And one of the potential options for our money-raising is the IPO, and we can consider raising IPO at this entity level.
We'll move on to the next question that is from the line of Tushar Manudhane from Motilal Oswal Securities.
Congrats on good set of numbers. Just on the biosimilars, biologics revenue. So around the year-on-year, the traction has been great. But sequentially, as I see, despite launches in Europe and even a few more emerging markets, the revenue traction has been more or less steady. So is this the kind of pace with which we should go ahead unless there are new approvals?
So I think -- thanks for the question and congratulations. I think what we'll see is that on a broad basis, year-on-year, we expect continued growth momentum as we've talked about. And I think that's the theme. I think as you go more granularly, you'll see some lumpiness here and there when we have launches, we have tenders. We still have a significant amount of emerging market business that is part of this where there is quarter-on-quarter variation. But overall, the trend is for definitely continued growth momentum.
So how much of this business would be from the tender base?
Yes. So this is a -- we have a good mix right now in -- across products and across regions, right, from developed markets and emerging markets. And a portion of emerging markets will be this. I mean it's not a majority of our business, but this launch -- but these kinds of factors and supplying time lines will drive some variation across quarters. But I think I won't put a specific number on it. It's not a majority of the business but enough to impact some of these trends.
Okay. And just on Small Molecules, if you can just help, growth in terms of price volume and the impact of currency.
So in the currency, if you look at last year, it was roughly INR 65 to $1. This year, has been around INR 68, a little over INR 68. So the impact of currency is 5% on a dollar-linked business. And Small Molecules, a large part of our businesses are rupee-linked given we supply to a lot of the Indian generic companies. So of the 18% full year growth that we reported, I would say a large part of that would be linked to increased volumes. We have seen pricing stabilize, but we are not seeing pricing necessarily go up. So a very small component, as I said, on the segment revenue coming from ForEx. But majority of the growth is from the volume uptick.
Understood. And just lastly, if you can help me on the effective tax rate with which we should grow for FY '20.
What we have said is that it will fluctuate between 22% to 25% at a group level. This year has been slightly lower because as was explained in trastuzumab that we benefited from R&D incentives on CapEx as well as the operating expenses in India, and this benefit is going to be available for another 1 year. After which, the benefit goes away completely. We also have few facilities which are currently under SEZ which will come out of the tax holiday period. And last year, as our -- U.K. entity turned profitable this year because of increased sales in our biosimilars business which led to utilization of some of the carryforward losses. So with -- next year, obviously, we will be paying full taxes without the benefit of carryforward losses. So we would see the tax rate increase on account of some of these benefits going away next year. So you should factor in somewhere between 22% to 25% on a steady-state basis. Again, it could fluctuate between the quarters because sometimes, if the R&D expenses go up and then you get the tax incentives in R&D, the tax rate might come down. But again, on a full year basis, you can consider 22% to 25%.
We'll move on to the next question that is from the line of Shyam Srinivasan from Goldman Sachs.
My first one is on the Neulasta market. If you look at secondary data, I think both you and Coherus seem to be doing pretty well in a kind of a duopoly. So just want to understand how we should think about this market. Do you think more of that entire syringes will, over time -- what's the [indiscernible], there is over time, will it move all towards the biosimilars or not? And the second question in that is do you think, at some point of time, given the economics, Onpro is something that one can target as well? So that's the first question.
Thanks for the question. I think on all of these innovator strategies to have multiple different presentations in the mix as part of their biosimilar responses, these are things -- some of the companies have said themselves explicitly, I think, that these will be -- these may be challenges that need to be addressed but are not expected to be permanent challenges. Finally, the value provided by biosimilars is going to drive things. So in the long term, we see great opportunities despite the various things that come up on the different products. And so I think that we see a good growth ahead of us on this product, and I think as you've noted, the traction and the momentum that's in the market right now on this product is good.
So just -- maybe -- so you think there is still upside from a share perspective on this?
Yes, I think in the -- over the next quarters, we expect continued growth.
Got it. My second question on the Biologics segment is on the -- we had insulin, we had trastuzumab launch in Europe. So just any traction, any commentary from Europe, specifically on the biologics side? Are we -- is it like very early days or is it like are we still waiting for tenders and stuff? Can you just give us some color, please?
I think you've hit it on the head. I think it's early days. I think it's really too -- we're very happy that we have these approvals, these launches in place. We have our start there, but I think it's early days to make comments on that.
Got it. And my last question is on the R&D guidance that was given. Are you also sharing how it's going to be split across -- because this quarter, we saw Small Molecules R&D shoot up. But can you give us a broad brush in FY '20 of how this R&D is going to be broadly split into -- over the different segments?
No, Shyam. We don't break it up. I think you will get that number at the end of the year once we report the actuals and the entity financials are uploaded. So there [ in chemistry ] are the actual numbers by our business segments, but not on an outlook basis.
We'll move on to the next question that is from the line of Neha Manpuria from JPMorgan.
As we were seeing market share traction in Neulasta and with launches coming through in Europe and possibly in the U.S. in the next year, how should we look at our CapEx tracking the requirement of capacity as market share ramps up across U.S., Europe and emerging markets?
In the past, I think we've always guided that there would be requirements for CapEx, and some of it we've already alluded to in our previous conversations, where we've already initiated investments in a large antibody facility in Bangalore. Clearly, there are other small modular investments in some of our other facilities whether it's the drug product facility in Bangalore or in Malaysia and elsewhere. So this prudent way of capital allocation in a modular way will continue going forward, on top of the large antibody facility that we've already initiated.
So if you could give us a number possibly of what the CapEx spend was in FY '19, and how we should see it tracking in [ FY 20-'21 ], probably given the Biologics business ramp-up.
I think the large antibody facility I think in the previous -- I believe, we had hinted that it might be of the order of $200-odd million. And on top of that, we usually at a group level not at the Biologics segment, but at the group level, we always say that we have another 150-odd crores CapEx, which is like an annual recurring CapEx. So there is not just maintenance CapEx but also some of the balancing capacities that we keep incrementally adding. This is across our businesses, biosimilars as well as Small Molecules.
Okay. Understood. The second question is on the Biologics business, I understand the EM business has lumpiness. Given the Europe launches and the traction we have seen in U.S., if you could give us any color on how should we look at the market share increase that the secondary data is showing versus the flat revenues quarter-on-quarter, it would be great.
I think if you look at the secondary data, if you look at [ actual ] data for Fulphila, I think it tracks at around 15%, 16% market share. And my sense is that, as Paul alluded to earlier, we expect to see steady growth in the -- over the next fiscal as far as the developed markets are concerned. I think the lumpiness that you talked about, causing a few emerging market [ tenders ]. So we continue to anticipate significant growth in our Biologics business next year. And on a top line basis, we hope to -- hope that the uptick that you saw -- have seen this year over the previous year will continue next year as well.
We'll move on to the next question. That is from the line of Nitin Agarwal from IDFC Securities.
Sir, on the R&D capitalization in the quarter, I mean what kind of programs have we begun to capitalize now because I think that -- understanding was a lot of the capitalization of R&D was done with the Mylan programs without -- with the [ insulin ] programs?
That's right. So the capitalized programs were trastuzumab, bevacizumab, Glargine and human insulin.
But we shouldn't be incurring incrementally a lot of costs on these programs, right, because all these trials should have been -- largely should have been done by now?
Well, the bevacizumab is in global Phase III, so a large part of capitalization is from bevacizumab. Also, human insulin is entering the Phase I, so also there are expenses for that. You're right, for trastuzumab, the costs are tapering down, and there are some costs that's incurred for Glargine as we had to complete some work, as everybody might be aware, for the U.S.
So on a trend basis, the amount of capitalization and the proportion of capitalization should come down -- come off, right, as we go through the years -- next couple of years?
Yes, yes. It should come down.
Okay. And secondly, on the Branded Formulations business. I mean the setback that we've had or the slow growth that we've had in the Middle East market in this year, how should we look at this market now going forward?
I think we expect some challenges to continue in the first half of next fiscal year. The reason is that there has been price revision by Ministry of Health, and that has led to destocking. And we will also have to take some shelf stock adjustment on the inventory held by our customers because of the revised pricing. And we do expect H1 to be impacted for this segment because of U.A.E.
And lastly, on the gross margins. I mean the gross margin that you've had over the last 2, 3 quarters, is that a typical range in which typically -- and these 3 quarters have some fair proportion of Biologics.
Yes.
Is that the sort of gross margin level we should assume to sustain? Or are we looking for a possibility of meaningful increases in gross margins with the increase in Biologics revenues?
I would say for next year, we will expect it to sustain once -- I mean FY '20 is when we'll expect an incremental uptick once we have launches in U.S. The launches are going to be in this fiscal year, but the effect of those launches in increased market share and full year impact will be seen in FY '21. So in '20 -- that's why we had mentioned that the core margins would remain stable in '20 compared to '19. And you will see an incremental growth in '21 over '20 coming from the impact of U.S. launches.
We'll move on to the next question. That is from the line of Surya Patra from PhillipCapital.
Sir, I just wanted to have a sense on the R&D [ visit ] again. So like in the earliest comments that you have indicated, about 15% kind of the biopharma sales, excluding Research Services revenue. So 15% of that would be the R&D. So in fact, we have already achieved that number in the current quarter. And hopefully, we should be seeing a kind of meaningful ramp-up in the Biologics revenues led by obviously the progress that we are witnessing on the pegfilgrastim front. And sir, some third-party data, it says that, okay, already 20% market share that we have gained. And the other 2 product launches are also likely to happen at some part of the current financial year. So then despite that, do you see that, okay, there will be a kind of incremental pressure from the R&D budget front on the overall margin?
Yes. So this -- in FY '19, full year FY '19, you should look at quarter 4. But full year FY '19, we were roughly 13% to 14% of expenses ex Syngene. And what -- that number would go up to 15%. Obviously, the revenue would also go up, so I think what we mentioned in the core margin percentage would remain the same, but the absolute R&D value will go up. One is the 2% incremental spend. Second is the revenues are still going up on account of all -- in all business segments. And for the reduced capitalization, I think Nitin had asked that question, and I've explained that the capitalization would start coming down over a period of time as we would have some of these programs, which are capitalized or complete.
But don't you think, sir, there should be some benefit flowing from the cost, reducing it to the Malaysia plant level with the launch of Glargine or even some ramp-up that we would be seeing in the emerging market?
But that has got no linkage to the R&D expenses.
No. No, I'm saying -- again, coming to the margin front, so sustaining margin from that. If I'm discussing then, so don't you think that there could be some benefit flowing from that side also?
At this stage, we do not expect any benefit. We also have new plants coming on, which we have not discussed. I mean like in last fiscal year, FY '19, we had capitalized a second ingestible plant in Bangalore. Next year, we'll be capitalizing our oral solid dosage plant in Bangalore, and a few other plants will come on. So while you're talking about Malaysia, which is getting to a breakeven stage and will start generating profits as we go along. But we'll also have new plants, which will get capitalized.
Okay. And now any clarity about the launch of trastuzumab in U.S. and Glargine in U.S.? Well, because there is an -- already indication by Roche anyway that, okay, when they expect the generic competition then hopefully, Biocon being the first mover on that front, at least having things before and compared to competition. So what is your sense there?
I think on trastuzumab, we have to maintain our position that we've previously maintained. But since there is a global settlement between Mylan and Roche, we would not be able to comment on the exact timing. And you are free to draw your own inferences from other commentary. But from our side, we would have -- we continue to maintain that.
Only difference is we -- Mylan, Roche, and we have said in the past, the launch is in calendar 2019.
Okay. Fine. And third, can you give some thought process towards the Bicara Therapeutics initiative, what we have taken? So what is the purposes there? And considering the Sandoz portfolio, Sandoz really -- a large portfolio, what we are working on the biosimilar front. This Bicara, how these are different, whether this is a novel biologic? And in total, so the R&D budget, whether we can be surprised on the real spend front also, considering all the things that is going on currently.
So to answer your question, if you remember, we are very excited with our immuno-oncology pipeline, which has been in the form of fusion antibodies. Now as you know, fusion antibodies, bispecific antibodies, T-cell engaging antibodies, this is a very hot area. And we are actually right upfront with a lot of these leading-edge kind of therapeutics. And whilst it was being done at Biocon, we felt that we needed to basically accelerate these programs. And we felt it was best done in the U.S. And Boston is one of the most bubbling kind of biotech hubs in the world, which has been doing a lot of this kind of work where you can get the best of people, best of scientific advice to really accelerate these kind of programs. So we felt that it was best to create a Boston-based subsidiary and now start developing these programs with that kind of base.So that is what we are doing. We are very excited with our first lead program, which is basically an EGFR TGF-beta molecule, which -- it's a very technical term, but it's basically a very exciting combination, which basically brings T cells to the tumor to kill it. So there are many types of tumor that express EGFR, so we are very happy and excited with this kind of a development.Now coming to, of course, the other parts of our business that will require R&D investment, yes, it is a fact that R&D is a very integral part of our business, and it is an investment in the future. If you do not invest in R&D, we will not be able to generate a pipeline that will sustain future growth and profitability. So whether it's our Biologics business, whether it's novels or whether it's our ANDA generics business, I think we will need to basically invest in creating these new opportunities for us if we are to sustain and actually augment and accelerate our growth prospects. So that is why I think we need to basically invest in R&D in the way we are.However, given the fact that our earnings quality is improving because of the kind of Biologics business that we have invested in the past, we believe that we can sustain the kind of increased expenditure through these increased opportunities that we are creating by way of these new molecules. So I think it's a very exciting inflection point for Biocon. You can see that all our investments that we have made in biosimilars have finally begun to payback for us. And we think that every one of these investments is going to pay back for Biocon big time.
Okay. Ma'am, in fact, after achieving successfully the $200 million kind of a revenue mark for the Biologics for calendar '19, which has been set out a couple of years back, so do you have any such guidance that you would like to have or provide about biologic opportunities?
No. At this time, it's very early to make those kind of predictions. We would like to sort of -- we keep looking at the way this business is growing. And maybe at some stage, we'll again probably give you some aspirational targets.
We'll move on to the next question. That is from the line of Damayanti Kerai from HSBC.
So my question is regarding biosimilar market in Europe. So you mentioned that it's early days in Europe for the launches, which we have done, and we definitely need to wait before we see traction coming in. But at the same time, we understand that Europe is more of a competitive market compared to Europe and maybe less attractive in terms of pricing. So how do you see yourselves here? Like what kind of particular edge would you believe Biocon, Mylan has in this particular competitive market? And any comments regarding that?
So I think you've laid it out well. I think you've laid out the background well. It is early days. It is a different market landscape from the U.S. I think the other piece of it is that biosimilar traction overall has been very good, right? The acceptance of biosimilars is quite good in Europe and they've been leading the way. I think there, it's a very diverse market, and I think it would not be a topic we can get into details out here. I think -- and it could be a good discussion point with Mylan who's leading the commercialization there as well. But I think there's a lot of differences across markets there as well. And I think, in all of these, it's about picking the right place that we want to compete in each market.
Okay. So you remain optimistic on European opportunities also or going ahead, it will be more focused on the U.S. for biosimilars? Because we understand that, yes, Europe is a very diverse market but, at the same time, it's very competitive and, in terms of pricing there are lots of variations. So going ahead, you'll be preferring focusing on U.S. over Europe? Or how are you -- how you are planning?
So I mean Europe will definitely be a very important component of our product mix. And think pegfilgrastim in the U.S., the first to market there in the U.S., that has a certain flavor to it. But Europe will definitely, overall, be an important part of our mix going forward.
And I would just add one thing here that U.S. will always be more attractive than Europe for the reasons you mentioned. That there's less competition, the pricing scenario is much better. It's not a fragmented market like Europe because each country will have a different strategy in Europe. So we're all -- for any pharma company, whether it's generic pharma or biosimilars, U.S. will continue to be more attractive than EU.
Sure. Second, can you provide update on the Malaysia plant, like how we are ramping up? And what are our expectations in the next 1 or 2 years from that plant?
So we continue to ramp up insulin in emerging markets. Over the next 1 to 2 years, the big growth driver there is Glargine in Europe. We have all -- Mylan has already launched Glargine in Europe. Though it's early days, we definitely expect to ramp up over the 1- to 2-year period. We will also look at launching Glargine in the U.S. once we get the approvals, and that will become a big growth driver both in terms of the value and the volume for Malaysia.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
A quick question on beva. I can see there are at least 7 players in the pipeline are in Phase III or onwards in the regulatory pipeline, I meant to say. So do you think this is an asset worth pursuing?
Sameer, even for trastuzumab, there were more than 7. But how many finally finished the -- crossed the finish line, I think that's more important. And as far as the U.S. is concerned, we have seen that there's a limited competition. And so far, there's been only one approval for the U.S. And we are on track to completing our Phase III. And we expect that if we are not -- obviously, we are not the first to get approved, but we'll not be far from the competition. And there's a big opportunity for this molecule both in the U.S. and Europe. And we think that it can be a big growth driver for us in the next 4 to 5 years' time period.
Okay. Great. And the second is on the U.S. Neulasta launch. Given that it's, if I'm not wrong, Part B and a clinical setting product, generally, the mark -- the adoption is expected to be slower but what -- you guys have achieved in 6 months to hit almost 20% market share, and thus Coherus is also chipping in. So any color you can add as to why the adoption has been stronger? Or what is it that you're seeing in this market?
Yes. I think Arun commented on this in the last quarter as well. The nature of pegfilgrastim has advantages in terms of a shorter-term therapy. That does make it a little bit easier than certain products. I'm not sure. Part B has maybe certain complications. It has certain advantages also in the way that those products are purchased. But overall, I think it just shows that there's a need for biosimilars in the market. And the skepticism that there are complications in the U.S. market, and there's been a lot of talk about that, but there's an underlying demand there, and there's an underlying value for biosimilars that is going to be realized.
Okay. And any update on the Glargine filed for the U.S. in terms of the site switch that we are planning to do earlier?
Yes. So we have responded to the agency, and we are working with them to take this through -- into the approval process. So we remain on track as we've guided before, Sameer. And we expect that switch to be in place -- to be in market, as guided earlier.
With your permission, just one last question. When we talk of European launch, I think you need to go country-by-country to take pricing approval and so on and so forth, which is a fair bit I would say different from the U.S. where a launch means launch, and you are in the market. So versus your -- when you announce in European market, when do you really get all the price approvals, and you're on the ground in all the countries? What's the time lag between the 2?
We mentioned launch even if it's been launched in one country. And I mean as well, as you rightly said that we have to get registrations, in certain cases, the pricing approvals in each country, and it will -- each country will have different time lines. But when Mylan launches, they might have launched in one country or a few countries. So those details, we do not comment on.
And that's the reason why Q4 we are not seeing any meaningful contribution from 3 launches in Europe. Will that be correct?
That is partially the reason, and the other reason is that it is also the early days because we're -- if it's a tender market, then your growth will come in alignment with the tender supply if it's a -- and they're a reimbursed market then the contract period will decide when the growth comes in, if it's a retail market, obviously, there will be a time to ramp up.
The next question is from the line of Charulata Gaidhani from Dalal & Broacha.
Congrats on the good set of numbers. I wanted to know the status on the bevacizumab trial.
So the global trial is on track, and we have a position where we should be in a place to submit somewhere towards the end of this calendar year into the U.S. and probably early quarter 1 in the EU.
Okay. So when do you expect the data to come in?
So we should probably have that data earlier towards Q2 of this year.
Okay. Right. And my second question pertains to your opinion on the Medicare for All scheme in the U.S.
I think that's one of many discussions that are going on in terms of how access can be increased for patients. Increased access will be a good thing for patients, will -- and biosimilars will have an important role to play in that. I think commenting on that specific proposal I think is probably premature.
Okay. But do you think it will bring it down the prices?
No.
There are various flavors of all of these proposals and various ways -- I mean biosimilars, of course, we expect there to be savings to the health care systems because of lower pricing. And so reforms in these systems should favor and work with the objectives of biosimilars overall. There are already a wide variety of procurement mechanisms in the U.S. that have different pricing dynamics. We'll have to see more on how the specifics play out.
We'll move on to the next question. That is from the line of Ranjit Kapadia from Centrum Broking.
Congratulations for a good set of numbers. My first question refers to pricing pressure in the U.S. for API and generic formulations. And the second question is we have seen the margin improvement mainly coming from material costs -- staff reduction and material costs. So how this been achieved, if you can throw some light on this.
So on your first question, we have seen stability in the pricing in the U.S. this month. Though there is a continued annual pricing decrease that happened, but the pricing has stabilized compared to a year back. And we do not expect that to change unless the dynamics in the U.S. changes for some reasons, which is beyond our control. In terms of the material costs, I'm not sure which number you're looking at because on a full year basis, I mean material costs is not the right costs. You should look at the gross margins. Our gross margins have improved. Material cost does not come down drastically. On a quarter-on-quarter basis, if you're looking at the 7% reduction, also see that the revenues have gone down. So -- but the gross margin has gone up from 62% in quarter 3 to 64%, and that's because of better product mix.
And sir, regarding other income, it has a sharp fall. So is there any one-off items?
So last year, we had ForEx gain, which was recorded in other income. This year, we had ForEx loss, which was recorded in other expenses.
The next question is from the line of [ Ajit Kinka ] from [ BSE Mutual Fund ].
Sir, 2 questions. So you made a comment on EMs not being a majority of your biosimilar revenues. Is it fair to assess that out of whatever your biologic revenue you are reporting, less than 50% is coming from the emerging markets?
We can't break it up by region.
No. You just made a comment on the call that it's not the majority of your...
Yes. That comment was that tenders are not the majority of our business.
And tenders are only in emerging markets. Is that correct?
No. There are tenders in Europe and...
Europe as well. Okay. Got you. Okay. So comment was on tenders. Okay, fair enough. And if you could just -- I know you're not giving out the number, but if you could just qualitatively, directionally, tell us, from the previous quarter, from the third quarter to the fourth quarter of this fiscal, have your emerging market revenue in biosimilars grown, declined? And what has that trend been in developed markets, grown or declined?
We see the forward numbers from Q3 to Q4 in biologics has remained the same, and I would say the mix also broadly the same. There's not a significant change in the ratio of emerging markets to developed markets.
Yes. So therein lies my confusion, sir. So your market share in pegfilgrastim in the U.S. has gone up significantly from your previous quarter average to this quarter average whereas your comment sort of says that your revenue might have been stable in both the quarters. So what am I missing here? Was there a channel fill in the last quarter, which was not recorded this quarter in the U.S?
That could happen. We also booked revenues in 2 stages. One is when we supply to Mylan; and second, we booked the profit when Mylan supplies to their customers. And I think what the IQA data and some of the other data has reported when finally the drug is liquidated at the point of administration. So we have 3 different points, it would be very difficult to reconcile the numbers at 3 different points in times.
I understand that. So just one final question on this front. So do you feel there is a meaningful change in inventory at Mylan's level because that's where your sales will be correlated to?
Yes.
So there is a sharp reduction in inventory at Mylan's level?
There's a reduction.
We'll move on to the next question. That is from the line of Harith Ahamed from Spark Capital.
Could you please provide the net debt number as of March 2019? And also the CapEx incurred during the year?
So the net debt at group level is 500 and -- INR 600 crores, give or take. So net debt of INR 600 crores, and CapEx again at the group level, excluding the R&D capitalized, so the tangible CapEx is INR 1,200 crores again at the group level for FY '19.
Okay. And could you also provide some time lines around the completion of trials and filings for Insulin Aspart?
I think for Insulin Aspart, we expect to be filing in the EU somewhere towards Q3 -- end of Q3 or early Q4. And in the U.S., probably towards mid-2020.
Thank you. Ladies and gentlemen, that's the last question. On behalf of Biocon Limited, that concludes today's conference. Thank you for joining us, and you may now disconnect your lines. Thank you.