Growth to come in from new products: Biocon

CMD at Biocon, Kiran Mazumdar Shaw believes that they will face a challenging year ahead but growth will be likely from their new products.

She adds that one should not expect much growth from the Statins business this year.

Further she says that their research services will continue growing at 50%-plus this year. 

Excerpts from CNBC-TV18's exclusive interview with Kiran Mazumdar Shaw:

Q: What do you see ahead in FY07 because this has been a bit of a challenging year for you. Do you see pressures on margins, profitability, and product prices continuing in FY07?

A: The main pressure really came from commoditisation of Statins
and that had a significant impact on our bottomline. But having said that it seems to have levelled-off. What one is seeing in the last quarter is growth from our new businesses, which essentially is insulin, branded formulations and research services, which have grown very robustly.

In the year ahead also we see the same thing happening. We do not expect much growth from the Statins business. This is largely because the only upside we can expect is from the US patent expiry of some of the Statins. We are very unclear about when this whole opportunity will pan out because there is a lot of uncertainty about the 180 days exclusivity. Those are the issues that will tell one whether this growth will go on or it is going to be back-ended.

In-terms of our new businesses that is where the growth will come from in the year ahead. I think insulin, branded formulations and research services are going to be the growth drivers. Additionally, we must also look at it in context of our increased R&D spend, because as one can see we are rapidly trying to transform our business model from just generic APIs to new molecules.

This means that we are going to invest heavily in R&D. There is also the impact of new facilities that we have created, so we have to carry that burden. It is going to be a challenging year ahead but with some interesting growth coming from new products.

Q: What do you expect the operating picture to be in the light of; one, continuing price erosion in the Statins side and whether your higher expenditure from the R&D front will let you keep margins at 30% which you did this year, or will margins slide in FY07 from that 30% figure?

A: We want to try and see how we can sustain these healthy operating margins even in the year going forward. The worst of the price erosion in Statins is over because that is what we experienced in Europe. We are hoping we might have some respite in the US market, but it is very difficult to predict whether it will come down to European levels rapidly. All depends on how many players there will be when patents expire.  

Q: Where are Simvastatin and Pravastatin prices at the moment? How low does the revenue contribution for the Statin space go for Biocon in the next financial year?
 
A: I do not think Statins as a volume and contributor to the topline and bottomline will change significantly. There will be a small growth but the real growth will come from our new molecules.

Q: A word on Nobex and whether they have any write-offs in this quarter? How soon does Nobex start contributing to Biocon’s revenues?

A: Nobex is an IP acquisition and that is being capitalised therefore it has had no impact on our bottomline. What is interesting about Nobex is that there are some very interesting licensing opportunities; immediate licensing opportunities and we hope to convert some of these within this financial year. So those are few of the upsides if one likes to call it that way. 

Q: What do you see in FY07 on the research services front and if you could quantify it?

A: In the research services front we had a very good robust growth this year of a good 52%. We expect this to continue going forward in the year ahead. 

Q: We believe that SCIREX maybe looking at picking up a stake. Would you like to confirm or deny that for us?

A: I don’t think that is accurate. There is no information on them picking up a stake. What we are trying to do with SCIREX is to have a strategic partnership to grow the business.

Q: You spoke about the branded formulations. Can you tell us what are your expectations from the insulin and the oncology space as you see it unfolding in this year?

A: Oncology is a new division so it is not going to contribute significantly to growth this year, but going forward it is going to be a very important segment for us. This is for the first time an Indian company is going to introduce its own noble products to the Indian markets. It is a very interesting space to watch. In terms of the other branded formulations in the cardio diabetes segment, we are expecting to see a very good growth. We are already making some good progress, we have gained market share and we will continue to gain better market share ahead this year.

Q: What can one expect in what you call a challenging year, high single-digit or low double-digit revenue growth, and flattish kind of profitability by the end of this year?

A: It will be along those lines. In our new businesses we will see double-digit growth. In our historical businesses I don’t expect to see double-digit growth at all. Infact it will probably remain fairly flat and ofcourse overall we would like to sustain the levels that we are reflecting today. If you look at it in context of the increased R&D spend and the new plant and its impact on the entire profit and loss, we would do very well if we sustain that kind of level.  

Q: Is that the focus for the next two financial years? Are you sure to move a little bit away from Statins and focus more on insulin and branded formulations like you pointed out?

A: Absolutely, we are really trying to get into that space and the reason we are trying to get into insulin and other kind of bio similars is because hopefully those kinds of spaces will have a different story. Biocon is in a very good position to take advantage of those emerging opportunities.     

Q: Finally your investors would want to know, having seen a challenging year with not much growth in earnings and looking forward to another challenging year with maybe not much growth in earnings. When Biocon gets back with its new businesses on the growth path? When can you assure them that you will see higher growth as new businesses kick in and by what time?

A: We are building towards this and I hope that in the next two-three years one will see Biocon really improving significantly on many of these opportunities because they have to open up. This is a business which is fraught with the number of barriers. It is a highly regulated sector. A lot of it depends on regulatory kind of pathways. There are a lot of ifs and buts about the generic space. That is what I mean to say it is very challenging space. You would have seen this in most of the financial reports that other pharmaceutical companies have also announced. Each one of us has to strategically move forward into an innovations led space. That is what Biocon is trying to do. The upside we would like to think will happen sooner than later, which is going to be very interesting. We have a very interesting pipeline of the new molecules and it all depends on how quickly we can go up that regulatory path.