R&D expenditure will rise in the coming quarters: Biocon Biologics MD

In a Q&A, Dr Arun Chandavarkar spoke on how its interchangeable insulin biosimilar has driven the business

Biocon saw its net profit rising 11 per cent to Rs 187 crore in the third quarter (September to December) even as revenue grew 18 per cent to Rs 2,223 crore. The bright spark for the business was its biosimilars segment which saw a 28 per cent rise in income to Rs 981 crore.

Biocon Biologics managing director Dr Arun Chandavarkar spoke to Business Standard’s Deepsekhar Choudhury on how its interchangeable insulin biosimilar has driven the business, R&D spends in the future and more. Edited excerpts:

What was the revenue impact of interchangeable Semglee on the biologics business in Q3?

We launched the product in November in the US and have definitely seen an uptake in revenue because of it. But that has only been on account of our supply to Viatris. As that supply starts going to customers through formularies, we will also start recognising the profit share. Together, the supplies and the profit share from this product will have an important contribution to our developed market revenues.

What is the status of the talks of a merger of the biosimilars business with Mylan?

We have already said that we can’t react to anything that is speculative in nature. Leaving aside the rumours, we have publicly articulated our aspirations to be a vertically integrated company. We are strong on the R&D front with five of our biosimilars having received approvals in Europe, and three of them have received approvals in the US. We have a strong credibility in large scale commercial manufacturing for the global markets.

When it comes to commercials, we have a field force in India and work through distributors in a select few markets. But clearly we do not have a direct presence in the developed markets. We have recently hired Matthew Erick as the chief commercial officer for Advanced Markets  which signals that we are progressing on a strategy to eventually, in the long term, create a fully vertically integrated company, which includes a direct commercial presence in the developed markets.

Your R&D expenses have been coming down. Will that be a continuing trend?

The reason you saw subdued R&D numbers for the past three quarters was that our wave 2 and wave 3 products had not entered the clinic trial phase which accounts for two-thirds of R&D costs on an average. The fact that we expect a few of our wave 2 molecules to enter the clinic this quarter means that we would incur that extra R&D cost over the next few quarters.

The biologics business’ EBITDA margin has remained flat over the last one year at 38 per cent. Will there be any improvement going forward?

We have always said that we expect that core EBITDA to remain in that ballpark range. The core EBITDA will increase with revenue contribution from the US market, which typically is among the more profitable markets, rising. Like the revenue contribution uptick that has happened with Semglee, other products such as Bevacizumab and Aspart will also add to revenues. This is not to give a forward guidance saying that magins will increase to 40 per cent or any such number as there will also be price erosion as time passes.

How will the US FDA approval for interchangeable Semglee help in other markets?

We have several approvals in several markets that actually predate the US FDA approval. However, the US FDA approval does have advantages as it gives assurance to patients and physicians globally that our product is no different from the innovator.