Biocon Ltd

NSE:BIOCON

Earnings Call Transcript 2021-Q4

[Operator]

A very good morning to one and all. A warm welcome to all the ladies and gentlemen in here, to the Biocon Limited's Q4 FY '21 Earnings Conference Call.[Operator Instructions] This conference is being recorded. And I would now like to hand the conference over to Ankit from Biocon Investors Relations. Thank you, and over to you, Ankit.

[Ankit Gupta]

Thank you, Melvin. Good morning, everyone. I hope you are fine and in good health. I'm Ankit from Biocon Investor Relations team, and I welcome you all to the earnings call for the quarter. To discuss the company's performance and outlook today, we have with us the Biocon leadership, comprising, Dr. Kiran Mazumdar-Shaw, our Executive Chairperson; and other senior management colleagues.I want to take this opportunity to remind you about the safe harbor statement. Today's discussions 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 and that could cause our future results, performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. At the end of the Zoom call, if you need any further clarifications, you can get in touch with us.Now I would like to turn the call over to Dr. Kiran Mazumdar-Shaw. Over to you, ma'am.

[Kiran Mazumdar-Shaw]

Thank you, Ankit. Good morning, everyone. I welcome you to the earnings call for Biocon for the fourth quarter and for the full year fiscal 2021. I would like to start on a note of hopeful optimism that we will overcome this devastating second wave of COVID-19, sooner than later, through mass vaccination. I wish you and your families good health and safety. The center's announcement that all Indians above the age of 18 will become eligible for vaccination starting May 1, will enable corporate India to vaccinate their employees and immediate family members, which will certainly help us to build the much-needed vaccine-induced immunity against hospitalization.Biocon is also at the forefront of this fight against COVID-19. Our subsidiary, Syngene, is an accredited vaccination center, and we are offering our vaccination services to all companies operating in the Electronic City area. The Biocon group is also catering to the countrywide demand for Remdesivir, Itolizumab and CytoSorb. Meanwhile, we have taken significant precautions and measures to ensure that our employees continue to work in a safe environment and wherever possible, work remotely.We continue to assess the situation and operate as per government guidelines as they evolve in different regions. This second wave has once again introduced uncertainties in our business operations as well as supply chain logistics. However, we will do everything to serve our patients and customers in every possible way despite all these challenges. Now let me discuss with you the key developments of the quarter.Let me start with some management updates. Shreehas Tambe, former Chief Operating Officer at Biocon Biologics has been promoted to Deputy Chief Executive Officer of the company, effective March 1, 2021. Shreehas has been with the company for over 20 years in operational and strategic leadership roles. He has led large diverse teams at manufacturing, quality, R&D and projects and engineering during his tenure within the Biocon Group.Biocon Biologics also appointed Susheel Umesh as Chief Commercial Officer, Emerging Markets. Susheel has over 30 years of experience in the pharmaceutical industry working in India, France and Sub-Saharan Africa for leading global pharma companies. With Dr. Arun Chandavarkar taking over as the Managing Director of Biocon Biologics, Shreehas Tambe as the Deputy CEO, and Susheel as the CCO, Emerging Markets, I believe we now have a strong leadership team to drive the future growth of our biosimilars business and return the company to its high-growth trajectory soon.I would also like to announce the appointment of Indranil Sen as the CFO, with immediate effect, concurrent with Anupam Jindal, who has stepped down from the position of CFO at Biocon Limited for personal reasons. Indranil was earlier the Vice President of Finance at Biocon and has -- since 2014 and has performed various key leadership roles within the finance department.Now coming to key highlights of the quarter. Biocon Biologics received marketing authorization approval from the European Commission for both biosimilar Bevacizumab and biosimilar Insulin Aspart. This is a very important development. These are products which we have codeveloped with our partners, Viatris, and we expect to launch these products in the near future.As far as our Generics business is concerned, we received U.S. FDA approval for Everolimus, generic for Afinitor, an immunosuppressant indicative to prevent rejection of organ transplants and used to treat renal cell cancer and other tumors. We also entered into a partnership with Libbs Farmaceutica, a leading pharmaceutical company in Brazil, to develop and commercialize our portfolio of generic drugs in Brazil, which, as you know, is a very large market and has the world's sixth most -- is the sixth most populous country in -- globally. Our Research Services business, Syngene, crossed a significant milestone with the extension of its collaboration with BMS until 2030. The new agreement includes an expansion across the breadth of drug discovery research, and a 40% increase in the number of scientists and an additional 50,000 square feet of dedicated laboratory space.I will now present the key financial highlights. Starting with the quarter and followed by the full year. Coming to financial highlights for Q4 fiscal '21, the fourth quarter delivered a year-on-year growth wherein revenues increased by 26% from INR 1,621 crores last fiscal to INR 2,044 crores for this quarter. Revenue from operations stood at INR 1,839 crores, up 18%, driven by healthy growth of 53% from Biosimilars. Research Services grew at 8%, whilst Generics reported a growth of 3%. We recorded gross R&D spends of INR 136 crores for the quarter, which corresponds to 12% of revenues ex Syngene. Of this, INR 127 crores is expanded in the P&L as R&D expenses, while the balance has been capitalized.The increase in R&D expenses account for higher spending in Novel Biologics, Biosimilars and Generics. We also booked a ForEx gain of INR 7 crores this quarter, but this compares to a gain of INR 35 crores last year for the corresponding period. EBITDA for the quarter is INR 641 crores compared to INR 382 crores for the same period in the previous financial year, and EBITDA margins for the quarter stood at 31% against 24% in Q4 FY '20. Net profit for the quarter is INR 257 crores.During the current quarter, Biocon ceded control over the Board of Directors and operations of Bicara Therapeutics Inc, to enable it to operate independently under a U.S.-based leadership team and raise funds to advance its development programs. As a result of this change, Bicara was classified as an associate from a subsidiary under IND-AS. Consequently, the investment in Bicara was fair valued, resulting in a gain of INR 160 crores which is reported under other income for the quarter. Adjusting for Bicara's fair valuation gain, our EBITDA during the quarter was INR 481 crores, reflecting an EBITDA margin of 26%. Net profit from continuing operations, excluding the exceptional expense, was at INR 97 crores, which is down from last year's INR 132 crores. Core margins, however, which is EBITDA margin net of licensing ForEx and R&D stood at 32%.During fiscal year FY '21, I would now like to come to the full year financials. Total consolidated revenues grew to INR 7,360 crores, up 14% compared to INR 6,462 crores last year. Revenue from operations was INR 7,106 crores, up 13%. Biosimilars reported a 21% growth from INR 2,315 crores to INR 2,800 crores this fiscal, followed by Research Services, which delivered 9% growth to report INR 2,184 crores in revenues. The Generics business grew 6% year-on-year basis reporting revenues of INR 2,336 crores.We incurred a gross R&D spend of INR 627 crores during the year, corresponding to 13% of revenues excluding Syngene. Of this, INR 553 crores is reported in the P&L as R&D expenses, while the balance has been capitalized. The capitalized amounts related to biosimilar development expenses.For the full year, we booked a ForEx loss of INR 9 crores, compared to a gain of INR 65 crores last fiscal. EBITDA grew at 8% for the year, INR 1,907 crores, and EBITDA margins at 26% for FY '21, down from 27% last fiscal. Net profit stood at INR 754 crores. Adjusting for Bicara's fair valuation gain, our EBITDA for the full year was INR 1,747 crores, reflecting a margin of 24%. Core margin stood at 32%, down from 33% last year. And net profit from continuing operations, excluding the exceptional expense, net of taxes was INR 594 crores, down from INR 789 crores last fiscal.Coming to the review of our business segments performance for the fourth quarter and full year, let me start with Generics. Our Generics segment reported growth during -- modest growth during the quarter on account of headwinds we have encountered by way of pricing pressure on both APIs and formulations. Travel restrictions that delayed regulatory approvals also denied us from certain growth opportunities and relatively subdued API revenues as well as formulation launches. The segment reported quarterly revenues of INR 578 crores, a 3% growth over the corresponding period last fiscal. The quarter's PBT stood at INR 73 crores versus INR 71 crores. PBT margins were at 13%, versus 13% in Q4 FY '20.On a full year basis, our revenues grew by 6% to INR 2,336 crores with a profit before tax of 13%, supported by a double-digit growth in generic formulations and a modest single-digit growth in APIs. As we indicated in the previous quarter, revenues for our API business in the second half of the fiscal were relatively subdued compared to the first half attributable to stockpiling by customers who are anticipating COVID-related supply disruptions. This, of course, led to high demand for APIs in H1. Our revenues for the formulation business were impacted by the absence of new product launches due to delays in the inspection of our facilities, as I mentioned earlier.We have also witnessed pricing pressure for some of our critical products and to mitigate the impact of pricing pressure, we continue to take -- undertake several initiatives in cost improvement and optimize our systems and processes to drive operational excellence.We received 4 drug master file approvals for our products in the U.S., EU and most of the world markets during the quarter. While the travel restrictions have impacted new market entries of APIs, we have been working relentlessly to expedite geographical expansion. 10 DMFs were filed in a key Most of World markets.After some initial COVID-related delays, the construction of our greenfield immunosuppressant plant at Visakhapatnam has started returning to normalcy. However, we have to watch the progress based on the second wave. While we expect the facility to be commissioned in CY -- calendar year 2022, as I mentioned earlier, we must be aware of potential disruptions that could happen from the second wave of this pandemic.In our formulations business, our key statin products continue to retain mid-to-high-teens market share in the U.S. Our first immunosuppressant formulation, Tacrolimus, launched in Q3 FY '21 has started to gain market share. We also received U.S. FDA approval for Everolimus, which is generic Afinitor. And this is an immunosuppressant indicative, to prevent organ transplant rejection. It is also used to treat renal cell cancer and other tumors. This is a vertically integrated product, which further fortifies our global positioning in immunosuppressants. We expect to launch this product in FY '22.We continue to build on our generic formulations portfolio by filing Abbreviated New Drug Application for vertically integrated products in the U.S., in addition to Market Authorisation Applications, and dossiers in Europe, and Most of World markets. The expansion of our generic formulations business outside the U.S. remains a key area of focus. Our partnership with Libbs Farmaceutica in Brazil was a highlight this quarter. In another crucial progress towards certificate -- towards establishing a strong presence beyond U.S., we received a GMP compliance certificate from MHRA, U.K., for our formulation manufacturing facility located at Biocon Park in Bengaluru. Overall, the generics business continues to be in an investment mode. We remain focused on our strategic priorities, and we'll continue to deploy capital for creating capacity and adding new products through our R&D efforts.As we work towards strengthening our Generics business, we expect this segment to demonstrate modest growth in FY '22 and strong uptick in FY '23 onwards.Coming to novel molecules, our novel assets continue to be driven by our inherent capabilities and external collaborations. Equillium, our U.S. partner, reported encouraging developments on the clinical advancement of Itolizumab, a first-in-class anti-CD6 monoclonal antibody. Equillium remains excited about Itolizumab's therapeutic use in acute versus -- graft-versus-host disease, lupus and lupus nephritis and uncontrolled asthma. While COVID delayed clinical studies in 2020, we are awaiting clinical data from all their studies in calendar year 2021.Itolizumab was also launched in India for treatment of COVID-19 under emergency use. We will have the first card data on the ongoing Phase 4 study shortly, which will further validate the potential of Itolizumab in effective ARDS treatment. The demand, as you must have seen for Itolizumab is far exceeding our ability to supply during the second wave of the COVID-19 pandemic. And we expect to catch up with the demand sometime in mid-June.Our COVID portfolio comprising Remdesivir under a voluntary license from Gilead. CytoSorb and Itolizumab continues to serve COVID-19 patients in the wake of -- in the wake of this second wave.Now coming to Biosimilars. Biocon Biologics has recorded revenues of INR 664 crores in this quarter, a year-on-year growth of 53%. EBITDA margins were at 25% with absolute EBITDA growth of 81% year-on-year growth. And however, I must point you to the fact that last fiscal, the quarter was an exceptionally low quarter.We have seen a sequential decline of 14% EBITDA -- I'm sorry, 14% revenue growth decline and a 22% sequential decline in profit in EBITDA growth. So I would like to now say that profit before tax stands at INR 68 crores.Moving on to the full year performance, Biocon Biologics recorded revenues of INR 2,800 crores, representing a year-on-year growth of 21%. EBITDA margins was at 27% versus the 33% in fiscal year 2020. Net R&D costs increased from INR 178 crores, in FY '20 to INR 284 crores in FY '21. This reflects the good progress we are making on several of our programs. Profit before tax, therefore, stands at INR 365 crores compared to INR 428 crores in FY '20. I would again like to emphasize the fact that R&D investments are critical to future growth. And we believe that this is an investment that needs to be looked at very differently, compared to other expenditure.Over the last year, we have seen a slight uptick for Fulphila in the U.S. and steady growth for Ogivri. Despite competition, these products have shown resilient performance. We had launched Semglee in the U.S. in fiscal year 2021 and have seen a slow but steady ramp-up in market share.In Europe, our sales continued to improve on the back of new market entry and improved market share in key markets. Based on IQVIA data, Ogivri continues to be a leading biosimilar trastuzumab in Australia and Canada. While we have seen decent growth of 21% in FY '21, there were certain business challenges that were amplified by COVID-19, restricting our ability to achieve our targets. Our partner, Viatris, is deploying various strategies to ensure the good growth of our commercialized products in the U.S. and other developed countries.While COVID-19 presented some challenges in emerging markets such as tender delays and reprioritization of budgets within health care systems, we continue to see strong demand for our biosimilars in these markets, resulting in good growth in our B2B and emerging market business for the year FY 2021. We have garnered a significant market share in many key markets such as Algeria, Brazil and Malaysia. Moving on to the R&D pipeline. We are pleased to announce that we have received European Commission's approval this month for our biosimilar Bevacizumab, developed in partnership with Viatris. This follows the approval of our biosimilar Aspart in Europe, last quarter, giving us a robust portfolio of 5 approved biosimilars in Europe, along with an economic interest in 2 more approved in-licensed products.We are awaiting feedback from the U.S. FDA on the timing of the site inspections for biosimilar Bevacizumab. We have noted that the U.S. FDA has recently issued guidelines for virtual inspections for overseas facilities. And we are now working with the agency to see how soon we can affect this inspection and receive -- as we have already received a positive outcome from the U.S. FDA on our BLA submission for both Insulin Aspart and Bevacizumab.Last year, we received WHO prequalification for our biosimilar Trastuzumab, which covers 46 LMIC countries. Whilst we have recovered from the impact of the first wave of the pandemic, uncertainties with the second wave continue in the near term. So far, we have not seen any significant impact on our operations, but we are closely tracking the evolving situation. The biosimilar market whilst becoming increasingly competitive, continues to offer attractive opportunities for vertically integrated players like us. We expect to continue the momentum and improve market share for our current commercial products and expect to launch biosimilar Bevacizumab and Insulin Aspart in the developed markets in FY '22.We also expect to make good progress in our robust R&D pipeline. We believe that we are well positioned to grow our Biosimilars business globally on the back of our robust business fundamentals, scientific know-how, low-cost manufacturing setup, early-mover learnings and a broad product portfolio.I would also say that at this point, we are confident that FY '22 is in a position to show higher growth than this fiscal.Lastly, let me come to research services of Syngene. During the quarter, Syngene reported revenues of INR 659 crores, up 8% over Q4 FY '20. PBT for the quarter stood at [ 24% ] versus 25% for FY '20. For the full year, Syngene reported revenues of INR 2,184 crores, demonstrating growth of 9% against the corresponding fiscal -- previous fiscal. PBT for the year stood at 20% versus 22% for FY 2020.Syngene's Mangalore API manufacturing facility completed the qualification process during the quarter and is now a GMP-certified unit. Syngene continued to build on its integrated drug discovery and development portfolio during the year, including a 5-year collaboration with 3DC, the drug discovery development subsidiary of Deerfield Management Company, and is proud of its partnership with -- Albireo Pharma to develop a drug that will help to treat specific genetic liver diseases primarily in children.Syngene also continued to support its clients on various research projects, including leukemia, Parkinson's disease, inflammatory disorders, fibrotic disorders and orphan diseases. Based on Syngene's strong fundamentals, sound business model, robust liquidity position, client base and healthy fiscal risk profile, CRISIL and ICRA upgraded Syngene's credit rating during the year.In conclusion, I would say that these are challenging times, testing our resilience, intelligence, agility, adaptability and other attributes that a business must display to stand out in a crowd. At Biocon, we are conscious that the pandemic is far from over, and it may continue to riddle us with new challenges at regular intervals. That said, we have spent the past year adapting to the new normal. We identified new areas that needed work and made amends. We worked hard over the past year to prepare ourselves to tide over past eventualities.Big or small, these eventualities were something we were very much focused on overcoming. Consequently, despite the headwinds, which resulted in some setbacks, we had a string of encouraging developments which laid a solid foundation for our future growth. We are confident of the long-term opportunities in every segment where we operate and our ability to deliver value to patients and customers and stakeholders the world over.In FY '22, we expect to retain the growth momentum, led by higher revenues in Biosimilars, Research Services and Generics. We will continue to focus on the portfolio, strengthening the development pipeline and fast-track capacity enhancement. These initiatives will bolster our pursuit of enabling access to affordable therapies to patients worldwide and will have us positioned well to deliver on the expectations of our partners and stakeholders.With this, I would like to open it up to the floor for question and answers.

[Ankit Gupta]

Thank you, ma'am. Ladies and gentlemen, we will now start with the Q&A session. [Operator Instructions] We'll take the first question from Prakash Agarwal, Axis Capital.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

My first question, madam, is on the guidance. Is there a rethink on the guidance that we were -- last quarter, we said that we will review the guidance for our Biosimilars business. Is there anything there?

[Kiran Mazumdar-Shaw]

If you remember, Prakash, last quarter itself indicated that the $1 billion target was unrealistic at this point in time, and that was already conveyed to you. In terms of guidance, I think we will need a few quarters before we clearly indicate what we see as the growth opportunity. But all I can say is that at this point in time, we have seen a growth of, in the Biosimilars business of 21% this fiscal. I can confidently say it will be higher than that.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

That helps. And secondly, ma'am, on Q4 performance, you had a detailed opening remarks. But while you mentioned that there has been a Q-on-Q decline in the Biosimilars business and also EBIT margin has come off. So it is largely -- I mean, when we see that market share data is largely stable or marginally increasing. So do we come to a conclusion that in the U.S. or developed market, there has been a higher pricing erosion? Would that conclusion be correct?

[Kiran Mazumdar-Shaw]

It -- there has been a higher -- I mean there has been some price erosion, but I think -- there has been a price erosion, but I think more than that, I think we have had certain increased costs which are -- and as you can see, our R&D costs have also been very high this quarter and this fiscal. So all that has contributed to this, and we do need to basically make sure that we focus on higher revenue growth and make sure that we get greater contribution as a result of that to our EBITDA and EBITDA margins.

[Ankit Gupta]

The next question is from the line of Damayanti, HSBC.

[Damayanti Kerai, Analyst, Healthcare and Hospitals]

This is Damayanti from HSBC. Ma'am, my first question is on some of the in-market product in the U.S., such as Trastuzumab and Fulphila. So especially for Fulphila, our market share has been steady if we look at the market data. But we have seen a really strong pickup from some of the competing biosimilars which have entered relatively recently. So my question is like, do we have scope to improve our margins -- sorry, market share from here? And what could be the factors helping us to achieve better market share in in-market products?

[Kiran Mazumdar-Shaw]

So I think Viatris is certainly looking at this opportunity to increase market share in the developed markets. And I think they will focus on how they take on the competitive forces that they are seeing today. So I am very confident that Viatris will focus on garnering market share. But that will likely lead to some price erosion as well. So I think it's really a question of how do you want to play in the market, but I think Viatris is very aggressive.

[Damayanti Kerai, Analyst, Healthcare and Hospitals]

Ma'am, my second question is on Bevacizumab, which we are hoping to launch in the U.S. in near term. So again, that market, when we look at the competitive scenario, right now, 65% market share is taken up by 2 biosimilars, which have entered before us. So with this kind of market share going to the incumbents, do you believe Biocon will be able to make any, I'll say, significant market share or sales, given the competition and pricing erosion in that particular segment?

[Kiran Mazumdar-Shaw]

So Damayanti, first and foremost, yes, it is most unfortunate that COVID denied us entry into the U.S. market as we were expecting to get approval in December 2020. But that said, I would think that given the fact that we are extremely competitive in terms of Bevacizumab, Viatris and Biocon believe that they can still enter the market and quickly garner good market share. It will take some time because it is always beneficial to early entrants, and it takes time for the follow-on companies to take away market share. But we believe that the biosimilar opportunity is going to be a very large opportunity over the next few years. And given the competitive -- the market competition that we are seeing, we believe that we are in a good place.

[Ankit Gupta]

We have the next question from Neha at JPMorgan.

[Neha Manpuria, Analyst]

Ma'am, on the Biologics business, the 14% revenue decline that we have seen. Is it fair to assume that all of that decline is essentially due to price erosion in the U.S.? Or are there any other moving parts in that?

[Kiran Mazumdar-Shaw]

No, no, no. Generally, what happens is that, as you know, the U.S. -- Viatris' year ending is December, and we always see a slight decline in the fourth quarter, because what we generally see is, that they do basically cover their requirements in the third quarter, and then we see a slight decline in the fourth quarter. Last -- so we believe that although the third quarter had a higher realization than the fourth quarter, we believe that this is a natural trend that we are seeing every year. So we are not that concerned. But basically, what we believe is that we have lost significant opportunities because of our inability to launch, for instance, Bevacizumab in the U.S. market. That was a significant hit for us. And there have been COVID impact, which has not allowed certain existing products to garner increased market share. So we believe that you will see improvement in the coming quarters.

[Neha Manpuria, Analyst]

In that case, ma'am, the EM business wasn't impacted quarter-on-quarter. That continued to show momentum. That would be a fair assumption?

[Kiran Mazumdar-Shaw]

Yes. The emerging market business did see growth, and we expect it to be even greater in the coming quarters.

[Neha Manpuria, Analyst]

And my second question is on the guidance that you mentioned that in FY '22 growth is likely to be higher than the 21% we have reported. One, does that assume launch of Beva in the U.S. biosimilar Beva the U.S.? And second, what would be the moving parts for that growth, would it all be driven by developed markets? Or you mentioned emerging markets. So how much of it -- that growth is dependent on U.S. and Europe?

[Kiran Mazumdar-Shaw]

Whilst I can't share the breakup, all I can say is that we expect very significant contribution from emerging markets, and we expect good contribution from the developed markets and from new products as well. So all of these are expected to contribute to good growth in the coming fiscal. And to answer your question, yes, it is also riding on some revenues coming from Bevacizumab.

[Ankit Gupta]

The next question is from Shyam Srinivasan, Goldman Sachs.

[Shyam Srinivasan, Equity Analyst]

My first question is on the biosimilar core EBITDA margin, right? There has been a lot of variability around R&D, Q-o-Q. So I'm kind of looking past that and looking at core EBITDA margins. I think the press release talks about 36% for fiscal '21. But I'm just curious about Q4, what the core EBITDA margins for Biocon Biologics are, and I'm just trying to link it to the point around price erosion. Has there been a material Q-o-Q impact on that core EBITDA.

[Kiran Mazumdar-Shaw]

So perhaps I would like to turn this question over to my colleagues, Chinni -- Chinappa and Arun Chandavarkar. Chinni...

[M. B. Chinappa, CFO of Biocon Biologics India Ltd.]

The core EBITDA margins for the quarter is 33%, but on a full year basis, it's 36%. And continue to look at the full year rather than the quarter. The quarter had some moving parts, some one-off items that skew the numbers. The full year average is a better indication of the U.S. performance.

[Shyam Srinivasan, Equity Analyst]

So Chinni, is that pricing pressure, has it led to that, whatever 33% versus 36% or you think, and when we look forward, how should we look at that number, the -- north of 21% of growth, but what about margins, core EBITDA margins?

[M. B. Chinappa, CFO of Biocon Biologics India Ltd.]

Yes. I think we believe that in Q4, the sequential dip in Q4 is kind of a one-off, and it could -- I mean, really look at it on a full year performance that one-off items have skewed or brought Q4 down lower. It's not structural. The full year is a better view of the performance.

[Shyam Srinivasan, Equity Analyst]

And Chinni, sorry to just persist on this, the severance pay, does it come in that number there? does it come?

[Kiran Mazumdar-Shaw]

Yes. I think...

[M. B. Chinappa, CFO of Biocon Biologics India Ltd.]

Yes. sorry. These numbers are just -- revealed is excluding severance pay and excluding exceptional items.

[Shyam Srinivasan, Equity Analyst]

Got it. Got it. Okay. My second question, in general, on the rest of the business, the generics business. Again, pretty flat kind of growth for the year. But just is there an outlook, we are again starting to see maybe at least some of the API numbers start picking up, again for -- if I look at trade data, if I look at competitors. So just curious around the outlook for this business for fiscal '22.

[Kiran Mazumdar-Shaw]

Siddharth?

[Siddharth Mittal, MD, CEO & Director]

Shyam, I think Kiran already alluded to, in her opening commentary, that we expect our double-digit growth for formulations business in FY '22. And we expect a low-single digit to flattish growth in our API business, for 2 reasons. One, we are also -- as we're getting ready to launch our formulations in the U.S., a lot of the APIs that we were earlier commercializing would be used for our formulation sales. And second is, as we create new capacities, we are currently running our plants full. So we do not -- until we get Visak commissioned and ready to commercialize, till we get our Hyderabad facility where we are investing in a large synthetic facility, commissioned and ready to be commercialized, we do not expect API business to grow significantly. I think that this is also in line with the guidance that we had given last year. If you recall, same time, for FY '22, we have given a similar guidance that we expect API business to grow mid-single digit and our formulations business to grow mid-teens to high-teens. And that's exactly what happened in FY '21. And we expect a similar trend in next fiscal year. And again, as Kiran mentioned, we expect the growth to start in Generics business starting in FY '23. That's when we expect more launches in the U.S. in our formulations business, plus we expect additional capacities to be commercially ready to increase the sales in our API business.

[Shyam Srinivasan, Equity Analyst]

Yes. This data point, 80/20, is that the same split of API to formulations, Siddharth?

[Siddharth Mittal, MD, CEO & Director]

That's right.

[Shyam Srinivasan, Equity Analyst]

Got it. And last accounting question, this INR 160 crores of gain doesn't seem to be showing up on tax lines similarly. Is there some -- is it not a cash gain? I'm just trying to understand that.

[Siddharth Mittal, MD, CEO & Director]

Yes, there's no tax impact on that INR 160 crores. It is a onetime step-up that we have taken because of the change in the way Bicara was accounted. And that has been shown as -- in the other income, but for all practical purpose, it's not the cash income, which is there. But there is no tax associated with this gain.

[Ankit Gupta]

The next question is from Surya Patra, PhillipCapital.

[Surya Narayan Patra, VP & Pharma Analyst]

So just on a clarification on the -- this Bicara piece. So we have reduced our exposure and hence, is it fair to believe that this R&D intensity will see some kind of moderation because of that. And whether this quarter also, a sequential reduction in the R&D. Is it because of that fact?

[Siddharth Mittal, MD, CEO & Director]

That is correct, Surya. So we -- this will no longer be consolidated with our financials, but it will be treated as expenses or loss coming from associates. So there were expenses of roughly INR 70 crores in R&D for Bicara which has been -- which is not included in the R&D line.

[Surya Narayan Patra, VP & Pharma Analyst]

So anyway, it is not impacting as of now.

[Siddharth Mittal, MD, CEO & Director]

No.

[Kiran Mazumdar-Shaw]

So this will be discontinued -- I mean as an associate -- obviously, the R&D expenses of Bicara will no longer be directly impacting our -- but maybe, Siddharth, you might want to explain it.

[Siddharth Mittal, MD, CEO & Director]

Yes. So since this is no longer a consolidated entity or -- and Bicara is looking at doing fundraise in the coming fiscal, wherein Biocon will be diluted further. We have lost control on the appointment of Board of Directors because of the way the fundraise happens in the U.S., there are certain rights that the incoming shareholders look at, and they don't want really the parent company to control the Board, and hence, we have to give up the Board rights.So on a go-forward basis, our obligations, our financial obligations are no more there for Bicara. We have already funded $40 million so far in Bicara to get Bicara to this stage. And all the future funding will be raised directly by Bicara through a various -- through a combination of various funding rounds. And since our obligations are restricted, the future loss that we will take on account of Bicara will also be restricted.

[Surya Narayan Patra, VP & Pharma Analyst]

My second question was on the kind of margin trajectory share for the subsequent periods. While the opportunity on the biosimilar side, that really looks very strong, there is no change to the kind of ultimate expectations at all. But obviously, last year was a kind of an abnormal year, because of the COVID, which impacted in multiple manner to our biosimilar progression.So going ahead, while that is still there, that is, [ the impact ] of that is still visible. That is one. And we have seen a static kind of situation in terms of the penetration of our product or market share of our product, so possibly that could lead to a kind of a further price correction from our side in terms of offering and could impact to the margin. And subsequently, even on the various revenue stream front, whether it is on the Syngene front or in the small molecule business front, there are enhanced activities that is on, which obviously possibly will start benefiting FY '23 onwards. So what is the kind of margin expansion or that -- or what is the kind of margin scenario that one should expect in the subsequent period or, let's say, in FY '22 given all the [ challenge ] as well as the long-term opportunities.

[Siddharth Mittal, MD, CEO & Director]

So Surya, I would answer it, slightly at a higher level. I would say that the core margin is something that you should look at rather than reported margin because of R&D being lumpy, as we have said in the past, both to Generics as well as Biosimilars businesses continue to invest in R&D and some of the activities we -- I mean whatever delays we saw in FY '21, we expect activities to resume in FY '22, which can increase R&D expenses. But from a core margins perspective, we do not see a directional shift in FY '22 at a group level.

[Surya Narayan Patra, VP & Pharma Analyst]

So sir, just if I can just add one more. Just ISPE award for the new monoclonal -- this mAbs facility. Is that -- is this still having any kind of meaningful implication for us to think about for this opportunity?

[Kiran Mazumdar-Shaw]

Yes. I believe this is an important recognition. Actually, this is a huge expansion for Biocon and there are many, many opportunities. It's also been obviously expanded for our own growing pipeline of products. But it basically allows us to be -- to scale where we can address large opportunities. So I do believe that this plant is going to serve us well in terms of various growth opportunities going forward.

[Ankit Gupta]

We will take the next question from Sameer, Morgan Stanley.

[Sameer Baisiwala, Executive Director]

Yes. Can you hear me?

[Ankit Gupta]

Yes, yes, we can.

[Sameer Baisiwala, Executive Director]

Okay. Great. Again, quick question. When we look at a macro level, biosimilars look like a great opportunity. It's not only DM, it's EMs. You have a whole basket of products, they're multibillion dollar per product sort of addressable market with just 2 to 4 players right now in the market. So it all looks good. But at the same time, when we look at micro level and what is getting translated into your kitty, into your P&L, then the numbers are very small and they just start going up. So I just wanted to understand what's going to change this? What's going to take our market share up? You got multiple products in multiple countries, but it's not showing up in our results.

[Kiran Mazumdar-Shaw]

That's a good question, Sameer. I think the way I look at it is the following. Let's also accept the fact that FY -- I mean, calendar year 2020 was a very, very difficult year for everyone, especially us, because you can see that we actually were left out of the market for no fault of ours. I mean if you look at the inability for plant inspections, I can tell you that that was a really bad miss for us because we were really looking forward to the Bevacizumab approval. Everything went seamlessly till this last minute. We actually are well positioned to garner market share. And as you know, many of our timings of entry into many markets, especially the U.S. were also floored.For instance, I do know that Viatris did miss out on a contracting cycle opportunity for Glargine in FY -- in 2020. And so many, many misses have happened as a result of either timing or delays of approval, et cetera, et cetera. So I am very confident that when we get over these impediments and hurdles, we will have a very large spurt of growth.As far as emerging markets are concerned, we are actually putting in all efforts to make sure that we are very significant players, and we basically tap all these opportunities. As you know, we have had a management change, and we are looking at all these opportunities in a very different way. And we expect that this will actually come back to the kind of growth trajectory levels that we were always pursuing. So I would say that you will start seeing better growth and improved performance in FY '22. And I think from FY '23, you will really see a very strong uptick. That is my take on the opportunities, the performance and our capabilities to garner market share globally. I think this is a huge opportunity. There are a few players. We have all that it takes to be very successful, and we want to deliver on that.

[Sameer Baisiwala, Executive Director]

Excellent. And the second question is, you talked about, in the previous call, that there should be 3 more drugs -- biosimilar drugs, which would get into clinical trials as we go forward. Any update timelines on that. And what it can do to your R&D spend in fiscal '22.

[Kiran Mazumdar-Shaw]

Yes. So the fiscal '22 R&D spend is, of course, likely to increase over fiscal '21. And these are important programs because, as you know, it's a bit of a captain -- catch-22. If you don't invest in R&D, then you're not going to be able to get growth through new products going forward. And if you invest in R&D, obviously, it does basically challenge your financials in some way. But we believe that R&D is a very necessary investment for our kind of business. So we will continue to invest in R&D. You mentioned 3 molecules, and we are on track to get into the clinic. I think there will be increased spends. But we are obviously calibrating the spends based on our business.

[Sameer Baisiwala, Executive Director]

Okay. One final question from my side. Looking at the FDA's guidelines for virtual inspection, how executable or how onerous do they look like? And related to that is, how did U.K. issue the marketing authorization for both Aspart and Beva? I mean did they come down to do inspection, or how was that made possible?

[Kiran Mazumdar-Shaw]

Maybe I'll ask Shreehas Tambe to answer these questions.

[Shreehas P. Tambe, Chief Operating Officer of Biocon Biologics]

Thanks, Sameer. I think the guidance is pretty clear in terms of how they want to conduct inspections remotely. And we've actually had experience with other agencies, including the EU to have done these inspections. And even in the other emerging markets that they've actually moved over to remote inspections. The approval that you specifically asked about the European agencies have leveraged even our previous inspections while approving our Bevacizumab facility in India and the facility in Malaysia as well. So we do have approvals for both Bevacizumab and Aspart, for one in India and one in Malaysia, from the European agencies.

[Sameer Baisiwala, Executive Director]

Okay. Any timelines that you can share for Bevacizumab of virtual audit by U.S. FDA and the approvals that can come about?

[Shreehas P. Tambe, Chief Operating Officer of Biocon Biologics]

Yes. So at this point, Sameer, we don't have specifics in terms of when they will come over exactly or will they then conduct remote inspection. But needless to say, both Viatris and us are working closely with them to get a sense of how quickly we can get that accomplished. As we've said previously, the agency has communicated to us that there are no outstanding scientific questions with regards to Bevacizumab. And we are looking forward to getting the pre-approval inspection accomplished, so that we can get the product to patients as quickly as possible.

[Ankit Gupta]

We'll take the next question from [ Milind ].

[Unknown Analyst]

I had 2 questions. The first one was on Insulin Glargine. Just wanted to understand that during a couple of previous questions, you said that it was unfortunate that we sort of timed -- the timing was not correct for Glargine. But now getting into FY '22, do you think that we will be able to sort of garner more share as we go ahead? That was my first question.And my second question was for the biosimilar target, which we had put of $1 billion, which we have said as, as of now looks unrealistic. But I suppose that is in terms of timing. And so going forward, do we see a very strong growth in Biosimilars considering the pipeline which we have and the existing products ramping up. These were my 2 questions.

[Kiran Mazumdar-Shaw]

So let me answer your first question. I think definitely, we will get to the $1 billion target as soon as we're able to get back to a high-growth trajectory. But as I said, we had given an indication that it would happen by FY '22, which is unrealistic. It won't happen by FY '22. And give us a little bit of time, as I said, to basically get back to a certain growth trajectory. Today, there are so many uncertainties. At least the U.S. and other markets have opened up for business so we hope that things will improve. That is our anticipation. But as you know now, India is in a very bad way. So we have to make sure that we continue to watch the situation, but we hope that our international markets will perform well.Now in terms of growth, as I indicated earlier in my comments, obviously, we expect much stronger growth than this year. And we will basically keep you posted on how soon the $1 billion target can once again become visible.As far as Glargine sales are concerned, we have -- I will maybe ask Paul to comment on the Glargine sales. But we do expect that FY '22 should see an improved performance in Glargine. And Viatris will be able to respond to many of these questions with far more granularity. But we believe that our Biosimilars business in the U.S. should see a greater performance.

[Paul Vazhayil Thomas, VP & Head Biosimilars Business Unit]

Kiran. Yes, I'll just add a little bit. I think we've seen some pickup in share already, over the course of this year. And as was stated, I think the formulary cycle, there's an annual calendar year-oriented formulary cycle. So as we get into calendar '22, there's an opportunity there for getting into the new cycle. And that's a process that's going on now, and that Viatris is very much engaged in and we look forward to grow through that process.Viatris has noted the complexity in bringing this type of product to the market and the expectation that there will be a long revenue stream with a slower ramp-up that we're seeing because of these factors, but we do expect that growth as we go into the new formulary year.

[Ankit Gupta]

The next question is from [ Vipul Shah ].

[Unknown Analyst]

Yes. Hello?

[Ankit Gupta]

We can hear you.

[Unknown Analyst]

Yes. So I just wanted to know what was the R&D spend for Bicara during FY '21?

[Kiran Mazumdar-Shaw]

Siddharth, you might want to respond to that?

[Unknown Analyst]

My -- ma'am my second -- sorry.

[Siddharth Mittal, MD, CEO & Director]

So the total amount of R&D for Bicara was around INR 180 crores.

[Unknown Analyst]

INR 180 crores?

[Siddharth Mittal, MD, CEO & Director]

Yes.

[Unknown Analyst]

And sir, would you like to comment on the performance of Malaysian plant for FY '21 at EBITDA level. Was it EBITDA positive or EBITDA negative? Or -- and would you like to give any qualitative color on the performance of the Malaysian plant?

[Kiran Mazumdar-Shaw]

Chinni?

[M. B. Chinappa, CFO of Biocon Biologics India Ltd.]

Malaysia continued to operate at a loss in FY '21. We see a lot of improvement in FY '22, but really waiting for the Glargine pick up in the U.S. for it to turn into -- or turn profitable and give us the desired ROI. But presently it's still operating at a loss.

[Unknown Analyst]

Will it be possible to quantify the loss, sir?

[M. B. Chinappa, CFO of Biocon Biologics India Ltd.]

Yes. Just give me a minute. It is -- I mean we have 2 parts to it. That is the -- at the PBT level -- sorry -- at the PBT level, it was $33 million of loss, for that EBITDA we broke even at -- with that roughly $4 million gain.

[Ankit Gupta]

Tushar, you can go next.

[Tushar Manudhane, Research Analyst]

Just a clarification on the R&D spend. While there would be...

[Kiran Mazumdar-Shaw]

We can't hear you.

[Ankit Gupta]

We can't hear you, Tushar. Your voice is distracting a bit.

[Tushar Manudhane, Research Analyst]

Am I audible?

[Ankit Gupta]

Yes, it is good.

[Tushar Manudhane, Research Analyst]

Just on the R&D spend, why do the 3 molecules would increase the overall R&D spend but at the same time, Bicara spend would not be directly [indiscernible]. So if you could just quantify how much it would be for FY '22?

[Kiran Mazumdar-Shaw]

We can't hear you properly.

[Siddharth Mittal, MD, CEO & Director]

Tushar, we didn't hear your question properly.

[Tushar Manudhane, Research Analyst]

Just on the R&D front, while there would be incremental spend on the 3 ones, but at the same time, Bicara R&D spend is [indiscernible] . If you could quantify the overall R&D [indiscernible] ...

[Siddharth Mittal, MD, CEO & Director]

Okay. So Tushar, let me probably try and answer the question. I still didn't hear you completely, but I think what you're asking is the R&D it's been going up on 3 molecules and the Bicara R&D spend no longer being there. And if the question is regarding the guidance on R&D for next year, I think in the ex Syngene, we have mentioned that we will be somewhere between 12% to 15% of revenues. And broadly, that guidance, give or take few 1% or 2% here, we maintain. I think in Generics specifically, we incurred 8% of revenues in FY '21. We are looking at spending 11% in FY '22. And maybe, Chinni, if you want to give a specific number for Biosimilars in terms of what was the spend as a percentage of revenue in FY '21 and '22, I think you'll be able to calculate what should be the spend next year.

[M. B. Chinappa, CFO of Biocon Biologics India Ltd.]

Tushar, the net R&D spend for the Biologics business was 10% of revenues in FY '21. We see that trending upwards, but we're not giving guidance yet on the specific numbers because it's dependent on the progress of the molecules.

[Ankit Gupta]

We can't hear Tushar, so probably he'll come back...

[Siddharth Mittal, MD, CEO & Director]

I think, why don't you go with the next one.

[Ankit Gupta]

We take the next question from [ Shiresh ].

[Unknown Analyst]

I wanted to understand the CapEx plan for the coming year and also what has been the total CapEx for the foregone year? And my second question was pertaining to the increased cash in the books. And we see the debt going significantly in the northward [ directory ]. There has been significant cash, yet there has been as part of increasing debt. So wanted to understand what has been on your mind.

[Siddharth Mittal, MD, CEO & Director]

So maybe I'll answer the second question first. So we -- as you know, last year, we did a couple of rounds of private equity fund raise. In Biocon Biologics, we raised almost INR 1,900 crores. And a large part of that money was used to repay the debt that was there between Biocon and Biocon Biologics. So the cash that is being held is primarily laying with Biocon to fund the future investment. So the net cash balance in Biocon as of March 21 is roughly INR 1,500 crores. And the debt that you see, maybe Chinni can explain because a large part of that debt actually is sitting in Biocon Biologics.

[M. B. Chinappa, CFO of Biocon Biologics India Ltd.]

Some of the debt was raised in the early part of the year when -- before the private equity funds came in. So the debt in Biocon Biologics has increased and towards the end of the year as we receive money from ADQ, that money is sitting on the other side as cash.

[Siddharth Mittal, MD, CEO & Director]

And that Goldman Sachs' is also treated as a debt, right? The fund raise from Goldman Sachs.

[M. B. Chinappa, CFO of Biocon Biologics India Ltd.]

Yes. For accounting purposes, the Goldman Sachs investment is also treated as a debt, called out separately.

[Siddharth Mittal, MD, CEO & Director]

Chinni, you might also want to give the CapEx guidance for Biosimilars [ going and then I ask Indranil to give the [ CapEx guidance for Generics ].

[M. B. Chinappa, CFO of Biocon Biologics India Ltd.]

For FY '21, total net spend, net of part of funding was $125 million. In FY '22, we expect $100 million out on account of CapEx.

[Unknown Executive]

So for FY '21, our CapEx in Generics was about INR 250 crores. In the past, we have guided around INR 2,000 crores to be the CapEx over the next 3 years. And at this stage, we continue to maintain that guidance.

[Ankit Gupta]

We'll take the next question from Charulata.

[Charulata Gaidhani, Analyst]

Yes. I have 2 questions. How many ANDAs do we have pending approval in small molecules?

[Siddharth Mittal, MD, CEO & Director]

So Charulata, at this point we have 10-plus ANDAs, which are at various stages. And there are 2 ANDAs where we had target action date in FY '21, where we have no more pending queries with the FDA. But we got the CRL on those 2 filings because of one of facility inspection by the FDA. But we are looking at multiple launches next year. We have 3 products, which are already approved and will be launched in the next year. And we -- subject to the approval of 2 products, which were to be approved in FY '21, we are hoping that FDA is able to do a virtual inspection and we can launch those 2 products in next year. But apart from these 4 or 5 launches in next year, we also have many other products, which have been filed and are under various stages of review. But the launch date for those products are beyond FY '22.

[Charulata Gaidhani, Analyst]

Okay. So we can expect 3 launches in FY '22?

[Siddharth Mittal, MD, CEO & Director]

Yes. As I mentioned that there would be -- I mean there are 3 new launches in FY '22, on already approved products. There are 2 products which are more vertically integrated products where we are expecting the FDA to inspect the facilities and give the approval. So you will have new launches in FY '22. And that's what is going to drive that double-digit growth that we guided for, for the formulations business of the generics vertical.

[Charulata Gaidhani, Analyst]

Okay. And how much is the investment in the new mAb facility?

[M. B. Chinappa, CFO of Biocon Biologics India Ltd.]

So if we really look as the numbers come out, we've got about $250 million, that is literally sitting in [indiscernible]. A substantial part of that is for the 2 large facilities that are coming on stream, one which just got the award, and there is another single-use bioreactor plant that is also under construction -- or under qualification really.

[Charulata Gaidhani, Analyst]

Okay. And my third question pertains to the WHO prequalification, do you expect -- I mean, how much business do you expect to generate from that?

[Shreehas P. Tambe, Chief Operating Officer of Biocon Biologics]

I will respond to that question. I think the doubles of prequalification is a very important step because there are several countries which look forward to this guidance to move forward with the commercialization of the product in those geographies. Now at this point, we wouldn't like to give specific guidance in terms of revenues from each of these markets. But needless to say, it is in line with our mission to see that we can get product accessible to as many geographies as possible. So it's a part of that mission.

[Ankit Gupta]

Thank you. We'll take the next question from Harith, Spark Capital.

[Harith Mohammed Ahamed, Vice President]

On Bicara, what is our stake now? Have we lowered it from the 100%, we used to hold earlier? And the increase in share of losses from associates and JVs to around INR 70 crores this quarter. Is it coming on account of Bicara? And will this be a recurring number?

[Siddharth Mittal, MD, CEO & Director]

Okay. Indranil, do you want to answer that?

[Indranil Sen]

Yes. So, thank you for the question. So subsequent to the stake -- so subsequent to losing control, our current stake in Bicara is at about 87%. The current quarter spend of INR 70 crores -- I think in one of our earlier comments, we mentioned that in the next year, we expect to pick up losses up to INR 200 crores. which will be limited to the extent of carrying value of investment in the associate.

[Harith Mohammed Ahamed, Vice President]

So INR 200 for FY '22 will be the share of losses from Bicara.

[Indranil Sen]

That's right.

[Harith Mohammed Ahamed, Vice President]

And then can you confirm the gross and net debt at the consolidated level.

[Indranil Sen]

So the gross debt at a consolidated level is about INR 4,500 crores. And net debt is around INR 700 crores.

[Ankit Gupta]

The next question is from Nithya.

[Nithya Balasubramanian, Research Analyst]

A quick one. Do you -- can you give us an update on the tangibility status for Insulin Glargine at the U.S. FDA?

[Siddharth Mittal, MD, CEO & Director]

So as we've said before, we are in conversation with the agency. And this, as we have said before, is the first of its kind for the agency. We have been receiving encouraging feedback. Clearly, conversations have progressed to a point, and we believe that under the 351(k) pathway, we will have an opportunity to move this forward. But at this stage, the agency isn't in a position to give us a firm guidance on where they stand on this. Although we remain optimistic on that progress.

[Nithya Balasubramanian, Research Analyst]

Sorry, just a follow-up. Do you have a [ tad ] date? And do you have any updates on whether this would require a pre-approval inspection?

[Siddharth Mittal, MD, CEO & Director]

So they haven't specifically guided us on the pre-approval inspection at this point, but we are watching how this progresses. As you know, we already have the approval, and we have the comparability for this. So we're not really looking at a physical facility inspection at this stage.

[Nithya Balasubramanian, Research Analyst]

Is there a [ tad ] date? Do you have a date on which you're expecting to hear back?

[Siddharth Mittal, MD, CEO & Director]

There has been, in general guidance, on where the agency would like this to be. But at this stage, given the pandemic situation, I think a lot of this has been fluid, Nithya, in the recent past.

[Ankit Gupta]

Ladies and gentlemen, this was the last question. We thank you again for joining us today. If you have any additional questions, you can reach out to us any time. We wish you good health and look forward to seeing you again next quarter. Have a good day. Thank you.

[Kiran Mazumdar-Shaw]

Thank you.