Biocon - At Last A Good Quarter

Biocon - Better Times Ahead

Biocon has come out with consolidated third quarter earnings. The company reported net profit of Rs 55.7 crore (Rs 557 million) versus Rs 43 crore (Rs 430 million) in the corresponding quarter of the previous year, up by 29%. Kiran Mazumdar, CMD of the company, says that the company has seen good price realisation from Statins and their Research Services business. She says that the Technology & Licensing fee has also started to kick in. Also, the company has double R&D spend YoY. She informs that the company's strategic investments have begun to pay off, and Biocon will be able to sustain OPM and profits hereon.

Excerpts from a CNBC-TV18 interview with Kiran Mazumdar :

Q: Take us through your results. They have done better than what the Street was expecting. What went better this time?

A: We had better price realizations in many of our segments; for instance, Statin, which was introduced to the US market last quarter, delivered good price realisations for us. This year, the services business did exceptionally well and continues to sustain both the top and bottomline contributions. We also had technology and licensing fees kicking in, which again contributed to these growth numbers.

It is important for us to take the growth that we have delivered in Q3 taking in view the fact that we have actually doubled our R&D spend as compared to last year’s. And of course, the carrying cost of the new plant has also increased the depreciation cost significantly compared to the same quarter last year. So if one looks at all that, then we have really delivered robust profits.

Q: Your operating profit margins have gone from 29.5% to about 31.7%. Are these levels sustainable, or do you think in the light of realizations firming up, you would see an up-tick in that?

A: We would be able to sustain decent levels of both margins and the operating profits. I think we have turned a corner and all our strategic investments are paying dividends now and going forward, will see good healthy sustainable performance.

Q3: How has Statin pricing been this particular quarter?

A: The Statin price realisations were largely opened up perhaps because the US market opened up and we were able to realise better margins as well as better pricing. We do realise that it is a matter of time before these margins and pricing levels will come down in the US but for the next few quarters, we see it interesting from a price realization view point.

Q: When will your JV with Neopharma start delivering revenues?

A: That won’t start giving us revenue till the last few quarters of the next fiscal.

Q: At the current juncture can we assume that you will be able to repeat the Q3 performance in Q4 as well?

A: At least that is what we believe.

Q: You have launched a new drug - Biomab - recently. How has that drug’s performance been? How much of a market share are you targeting at this point for Biomab and revenue generations from the same?

A: The drug itself has done exceptionally well; in fact it has done well in terms of our own expectations. It has really started getting good market share in its own segment. But if you look at the overall anti-biotic space, in India it is less than USD 10 million. So you are talking about a small share at this point in time even if we get good market share. We hope to make this into a Rs 100 crore product in three to four years. So you can see that we are very excited with what this product has to offer specially in terms of profitable contribution to the bottomline.

Q: I understand you have granted a marketing license for Biomab in Pakistan. What kind of revenues do you expect from that and by when?

A: Pakistan is another very important market for us because it has the same opportunities that are in India and we have got a good partner in Pakistan and anti-bodies are the fastest growing segment even in that country. The market of the oncology segment in Pakistan is about USD 70 million and anti-bodies at this point in time don’t amount for such a large segment in dollar terms but going forward, all these initiatives, which we are doing in the region and in all our other territories, I think will be able to help us garnish a good market share for all our products.

Chairman and managing director Kiran Mazumdar-Shaw said that the company would tap the vast potential of its new cancer drug, Biomab EGFC. “We want to increase our reach in neighbouring countries. We have granted an exclusive licence to Ferozsons Laboratories to sell the drug in Pakistan where the market is valued at $70 million. Our drug will help pave way for an affordable treatment,” she added. The cancer drug was introduced in the domestic market last September. Biocon has received enquiries from across the world since then.

Mazumdar-Shaw said consolidated revenues for the nine-month period grew 23 per cent at Rs 710 crore from Rs 578 crore in the year-ago period. Profit after tax rose 11 per cent to Rs 140 crore from Rs 126 crore. This quarter’s growth is mostly because of research services and biopharmaceuticals delivering a strong growth supported by statin exports to the US and technology and licensing revenues. The company has signed an MoU for a joint venture with Abu Dhabi-based NMC group for strategic marketing and manufacturing cooperation for the GCC region.