Biocon has decided to divest its entire stake in Axicorp, its German subsidiary, by June. It also expects to post a more than 30 per cent operating margin in the current financial year. Kiran Mazumdar-Shaw, chairman & managing director, spoke to Debasis Mohapatara about plans and concerns. Edited excerpts:
What is the rationale behind divestment in your German subsidiary?
We bought majority stake in Axicorp to market our products, namely insulin and glargine, in Germany. However, the relevance of this subsidiary has changed, as we entered into an out-licensing deal with Pfizer in October last year to market these two products in the global market. Also, if you see the numbers, while Biocon’s operating margin is at 32 per cent, it is two per cent for Axicorp. So, this divestment will improve profitability of our business.
But Axicorp contributes around 35 per cent (Rs 980 crore) towards Biocon’s top line. Will you be able to protect these numbers?
We focus on generating profit, not sales numbers. Also, the gap between revenue numbers is squeezing. For example, Biocon had a revenue of around Rs 2,370 crore in FY10, including Axicorp. This year, revenue from Biocon alone is around Rs 1,800 crore. So, the gap between total revenue and Biocon’s contribution to it is slowly narrowing. However, we may not able to compensate the total revenue figure from Axicorp in the current financial year. Also, it may happen that we may post higher revenue numbers in the current fiscal due to our sound product pipeline.
Your outlook on margin and profitability?
Milestone payment showed significant growth in 2010-11. How much will the company receive in the current financial year?
Biocon has received Rs 32 crore as licensing income during the last quarter of FY11, against Rs 20 crore last year. For the whole year, it was Rs 155 crore, a more than three-fold rise against last year. We should be able to sustain these numbers in the current financial year.
Any update on international partnership for your oral insulin programme?
Recent trials of oral insulin have met all safety requirements. We are looking for partnership for the oral insulin programme. There is huge interest in this space. We are likely to close a deal by the end of the current financial year.
What is your capital expenditure plan for the current year? Will you raise capital to fund growth?
We are planning to invest around Rs 200 crore in ramping up our manufacturing capacity and for research and development expenditure. This will come from internal accruals. Also, we will invest around $160 million (Rs 720 crore) for setting up manufacturing capacity in Malaysia over two-three years. As far as capital is concerned, we do have around Rs 500 crore as internal accruals. So, there is no need for raising capital at this point of time.
As both your contract research arms showed sound business growth, will you list these in the near future?
Our efforts of providing integrated contract research services have shown results and both Syngene and Clinigene have witnessed sound business growth. We definitely stick to our earlier plan of listing on the bourses, which will happen in the next 18-24 months.