Biocon Limited (BIOCON) Q3 FY23 Earnings Concall Transcript

Biocon Limited (NSE:BIOCON) Q3 FY23 Earnings Concall dated Feb. 15, 2023.

Corporate Participants:

Saurabh Paliwal — Head – Investor Relations

Kiran Mazumdar Shaw — Biocon Ltd.

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Matthew Erick — Chief Commercial Officer – Advanced Markets

Siddharth Mittal — CEO & Managing Director

Chinappa M.B. — Chief Financial Officer, Biocon Biologics

Indranil Sen — Chief Financial Officer

Susheel Umesh — Chief Commercial Officer – Emerging Markets, Biocon Biologics

Analysts:

Tushar Manudhane — Motilal Oswal Securities — Analyst

Cyndrella Carvalho — JM Financial — Analyst

Damayanti Kerai — HSBC — Analyst

Dhaval Bhalodia — — Analyst

Harith Ahamed — Spark Capital — Analyst

Surya Patra — PhillipCapital — Analyst

Shyam Srinivasan — Goldman Sachs — Analyst

Nithya Balasubramanian — Bernstein — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Neha Manpuria — Bank of America — Analyst

Unidentified Participant — — Analyst

Presentation:

Operator

[Starts Abruptly] Biologics are the part of a pre-agreed transition services agreement. In parallel, Biocon Biologics is designing a bespoke country-specific strategy and business model that optimizes for revenues and profitability. This we believe will create value for all our stakeholders.

We’ve also drawn up a comprehensive integration plan and intend to start migrating business operations in a phased manner. There are several upcoming launches including biosimilar Adalimumab in the US, making business continuity one of the key embedded terms of our integration plan.

Now coming to debt reduction, I would like to take you through our debt reduction efforts. To fund the acquisition of Viatris’ global biosimilars business, Biocon Biologics has made an upfront payment of $2 billion and issued $1 billion of convertible securities to Viatris. The upfront payment was funded through $1.2 billion of debt raised by Biocon Biologics, $650 million of equity infusion by Biocon Limited and $150 million of equity infusion by Serum.

Biocon Limited had raised $420 million of mezzanine financing to part fund the $650 million of equity infusion into Biocon Biologics. I am pleased to report that Biocon Limited has entered into definitive agreements with Kotak Strategic Situations Fund for a structured funding of up to INR1,200 crores. This funding together with the recently concluded stake sale in Syngene will help to reduce our net debt.

It is important to point out that Biocon continues to maintain majority control in Syngene at 54.9% post this divestment. Furthermore, we believe the divestment achieves key objectives, reduction of the Group debt and increased public float for Syngene. Biocon Biologics is also in discussion with private equity investors for additional fund raise to pare down its acquisition debt.

I would also now like to touch upon recent concerns around regulatory inspections. The post-pandemic recommencement of facility inspections by the USFDA in India has reportedly seen a surge in the number of Form 483s issue to companies, which has caused delayed approvals across the industry. Biocon’s new product approvals post pre-approval inspections have also been impacted with the issuance of complete response letters or CRLs by the agency. However, I would like to mention that Biocon received facility and product approvals from other regulatory agencies including EMA.

We — with the USFDA said to resume face-to-face meetings from March, we hope that this would allow us for greater engagement to address these issues. In the meantime, we are of course looking at this event as an opportunity for us to up-skill and advance our quality management systems so that we future proof our quality systems.

In terms of leadership update, I am pleased to share that Shreehas Tambe was appointed CEO and Managing Director of Biocon Biologics in December 2022 following the retirement of Dr. Arun Chandavarkar who will continue to serve as a non-executive non-independent director on the Board of Biocon Biologics. I would like to thank Arun for his longstanding contribution to the Biocon Group, and my best wishes for Shreehas for the transformation journey ahead.

I will now present the key financial highlights of the quarter. At a consolidated Group level, revenues for Q3 FY23 were up 36% on a year-on year basis at INR3,020 crores. Revenues from our Biosimilars business and Research Services business delivered strong year-on year growth of 54% and 23% respectively, and our Generics business grew at a healthy 18%.

Core EBITDA, which. I would like to explain as EBITDA excluding R&D, licensing income, forex movement, dilution gain in Bicara and mark-to-market movement on investments grew 49% to INR1,069 crores, which indicates a very healthy core operating margin of 36% versus 33% in the same quarter last year.

Growth in core EBITDA was offset by higher R&D investment at INR337 crores, an increase of INR199 crores compared to the same period last fiscal, representing 16% of revenues ex-Syngene. This is a clear reflection of our advancing pipeline that would drive our future growth. We also recorded a forex loss of INR44 crores as compared to a gain of INR19 crores during Q3 FY22.

Reported EBITDA for the quarter was up 35% at INR723 crores versus INR537 crores in the same period last year, with EBITDA margins sustained at 24%. Profit before tax and exceptional items stood at INR246 crores compared to INR269 crores during the same quarter last fiscal. The drop in PBT is attributable to certain amortization and interest costs related to the acquisition of the Viatris business.

The net profit for the quarter excluding exceptional items stood at INR140 crores versus INR187 crores in Q3 FY22. It must be mentioned that there is a part impact of state dilution on Biocon’s shareholding in both Biocon biologics and Syngene in the consolidated results.

I would like to also now turn to exceptional items during the quarter amounting to rupees INR182 crores, net of tax and minority interest, which primarily pertain to deal-related expenses of the Viatris transaction. And this of course then leads to a net loss of INR42 crores this quarter. This, I’d again emphasize, is a one-off event, and we expect it to return to normal from next quarter.

Now coming to segmental comments, I would like to start with Generics, our Generics business for this quarter. The Generics business delivered revenues of INR718 crores during the quarter, a year-on-year growth of 18%. Profit before tax for the quarter was at INR72 crores versus INR67 crores last year. And sequentially, revenues grew by 15%.

The performance during the quarter was driven by an increase in demand for immunosuppressant APIs as well as generic formulations, especially statins as well as recent product launches. Margins compared to previous year were neutral on account of continued pricing pressure in the US market.

During the quarter, we entered into agreements with Zentiva, a leading European pharmaceutical company, under which Biocon will manufacture and supply Liraglutide to Zentiva for its commercialization in 30 countries across Europe. And as you know, in Liraglutide we are a vertically — we are vertically integrated. This is a complex formulation and it includes a drug device combination used in the treatment and management of Type 2 diabetes and obesity.

Another agreement — we have also secured approvals for some of our key formulation products in Europe and we have also entered into a long-term strategic partnership with Farmanguinhos in Brazil for the supply and transfer of immunosuppressants, finished dosage formulation. And collectively, these agreements and approvals that we have seen — it’s important for me to state will actually allow us to drive that mid-teens growth for over the next 5 years and beyond.

On the quality compliance front, we’ve been issued a Good Manufacturing Practice certificate by EDQM, the European authority, for our active pharmaceutical ingredient manufacturing facility in Bengaluru following a GMP inspection of the site conducted in September.

With respect to our Visakhapatnam project, we continued to make broad progress and — in terms of our greenfield immunosuppressant API facility. And in terms of new peptide facility in Bengaluru, this also is on track. We expect to complete the validation batches in both sides by H1 of FY24.

Now coming to biosimilars, Biocon Biologics recorded revenues of INR1,507 crores with a year-on year growth of 54%, pursuant to the closure of the Viatris acquisition and steady growth in Biocon — in the Biocon Biologics led business. The revenue for Q3 FY22 — FY23 includes contribution from the acquired Viatris biosimilars business effective from the date of closing of the deal on the 29th of November, 2022.

Previously, Biocon Biologics recognized only transfer price and profit share of biosimilar marketed by Viatris. Post completion of the deal, it now recognize the full value of sales and associated expenses. The reported numbers therefore include one month profit from the acquired business and a provision for interest expense and non-cash amortization charges related to the acquisition.

Core EBITDA for this business stood at INR663 crores, which is up 83% year-on year. Core EBITDA margin jumped from 38% last year to 44% this fiscal. On — this of course was then impacted by R&D investments for the quarter, which increased to INR280 crores or 19% of Biocon Biologics’ revenues. We will see R&D investments normalize to around 12% levels of sales, as we accrue full revenues from by Viatris’ biosimilar businesses.

We continue to make very good progress on our R&D pipeline. Denosumab and Ustekinumab biosimilar programs have completed recruitment for the global phase work and Phase III clinical trials. And biosimilar Pertuzumab has entered Phase I trials for global markets.

Viatris has initiated an interchangeability study for our biosimilar Adalimumab, allowing us to maximize the commercial value of Hulio in the US. We have filed our biosimilar Aflibercept in general global markets, including the US and Europe.

EBITDA post the R&D and other expenses stood at INR361 crores, which is up 53% year-on-year. And EBITDA margin was stable at 24%. Depreciation & amortization and interest expense for the quarter increased by INR146 crores year-on-year, of which INR95 crores is attributable to the Viatris acquisition. Profit before-tax and exceptional items for this business stood at INR102 crores.

Advanced Markets continue — continues to see a strong penetration of our commercialized products, holding now double-digit shares in the US. Glargine’s total prescription market share is trending around 12%, while new prescriptions are at 14%. We continue to see strong momentum in our biosimilar Pegfilgrastim market share, which has crossed 11%.

In Europe, our biosimilar Adalimumab continues to see a strong uptake in key markets such as Germany and France where it has 18% and 10% market-share respectively. We also saw an uptick in Trastuzumab market performance in Europe achieving 17% and 20% market shares in France and Italy respectively.

We continued to launch our products in new markets with biosimilar Bevacizumab in Australia and biosimilar Glargine and Aspart in Canada last quarter. The Emerging Markets business continues to deliver strong performance underpinned by the insulin portfolio and biosimilar Trastuzumab. We have expanded our reach through new launches across Emerging Markets, and the franchise will be augmented by the integration of Viatris’ emerging market territories.

On the regulatory front, USFDA has accepted our CAPA plan pertaining to the pre-approval inspection of insulin Aspart in Malaysia, which was cited in the CRL. The Bevacizumab CRL requires us to address the observations made during the site inspection for which we have submitted a CAPA plan and are awaiting a response. We are confident of committing closure — we are committed to — for the closure of the actions within the stipulated timeline, and we are confident of being able to resolve the asks from USFDA.

In summary, the business continues to see healthy and profitable performance with several catalysts for growth, such as the launch of biosimilar Adalimumab Ii the US. And we believe that the acquisition of Viatris’ biosimilar business is a very key inflection point for Biocon Biologics, as we transform into a unique, leading, global biosimilar enterprise, which we strongly believe will drive huge value for all our stakeholders.

Comment on Novel molecules; as a part of the ongoing pivotal Phase III clinical study of Itolizumab in patients with acute graft-versus-host disease, enrollment continues to ramp up. There are now 45 clinical studies that are up and running. Enrollment also continues in Phase Ib clinical study of Itolizumab for lupus nephritis, and Equillium expects to announce topline data later this year.

I think it will be prudent for me to mention that many acute GVHD studies that were being conducted in — by various companies have actually not succeeded, and this particular molecule is the only one showing robust data. So, we hope that this will actually be if a very, very — it will hold its promise and really get approval in the foreseeable future.

Patient dosing for the Phase II trial in India for the clinical study of Itolizumab in patients with ulcerative colitis began in December 2022. And based on the very encouraging and promising data in acute GVHD, Equillium recently entered into an option and purchase agreement with Ono Pharmaceutical Company Limited Japan where Equillium was granted — has granted Ono the exclusive right to acquire its rights to Itolizumab. We believe that this is a very important event, as Ono is a very highly respected company that has brought several important molecules to the market through partners.

Now coming to Research Services, revenue from operations grew 23% to INR786 crores over the corresponding quarter last year. Reported EBITDA was up 15% to INR248 crores. Profit before tax was at INR140 crores, up 9% over the corresponding quarter last year. The third quarter results show positive performance across all divisions, with solid growth in Research division’s Discovery Services and Dedicated Centers.

Development Services benefited from repeat orders from existing clients as well as an increase in the number of collaborations with emerging biopharma companies. In Manufacturing Services, the highlight of the quarter was the successful inspections of its biologics facilities by the USFDA, EMA and MHRA. With Good Manufacturing Practice certification from the regulatory agencies in place, the Company is now well-positioned to fulfill its long-term contract with Zoetis and progress its biologics growth strategy.

So, I’d like to conclude by saying that we expect to end FY23 on a strong note, with healthy growth across all our businesses. Biocon Biologics will be the key growth driver as it begins to reflect the full quarter’s revenues on the newly-acquired Viatris business from Q4 FY23. Directionally, Biocon Biologics will be exiting FY23 at $1 billion trajectory, excluding vaccines.

Growth in FY24 will come from the launch of Adalimumab in the US and continued growth in Glargine, Trastuzumab and Pegfilgrastim. Launches of Aspart and Bevacizumab in the US post approval will provide additional upside. Biocon also is confident of delivering mid-teens growth in the company fiscal.

With this, I would like to open the floor to questions.

Questions and Answers:

Saurabh Paliwal — Head – Investor Relations

Thank you, Kiran. We will take a moment for people to raise their hands to ask a question. I request participants to please limit their questions to two to allow other people in the line to get an opportunity.

Kiran Mazumdar Shaw — Biocon Ltd.

I think you can start, Saurabh. There are many hands up.

Saurabh Paliwal — Head – Investor Relations

We will start with Tushar Manudhane from Motilal Oswal. Tushar, please go ahead.

Tushar Manudhane — Motilal Oswal Securities — Analyst

Yeah, thanks for the opportunity. Just on Adalimumab clarification, so we have like approval for all the strengths or a specific strength? And secondly, with respect to interchangeability, what is the kind of timeline can be expected to get the approval?

Kiran Mazumdar Shaw — Biocon Ltd.

Shreehas, you might want to take this and…

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Yeah, sure, thanks Kiran. Thanks for the question. We’ve seen that there are several players in the market. There are low-strength and high-strength formulation players. We have low-strength formulation that we’ve bought. We also have a product which really checks the key boxes of being citrate-free, latex-free and a device which would really be what the patient experience will be all about. So, we believe that we’ve got what it takes to be competitive in this market, Tushar.

Another important aspect which you talked about, interchangeability, that is something that remains to be seen We believe that, that may not necessarily be a criteria to win. We do not see other biosimilars which are currently taken up in the national formularies having interchangeability at this point. Nevertheless, it’s something that we will pursue and we will have the right to win when we get to our product into the market.

Tushar Manudhane — Motilal Oswal Securities — Analyst

Interesting. So for our strength, what would be the market size?

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

So at this stage, if you really look at it, the market from a innovator perspective has been moved to the highest concentration. But we do not see high concentration or a low concentration really being the differentiator. We’ve seen similar commentary from other incumbents who come there, other players who have also looked at bringing products. We’ve also seen payer acceptance from other biosimilars which had been launched. So, that may not necessarily be a criteria for success, Tushar.

Kiran Mazumdar Shaw — Biocon Ltd.

And maybe you should add that we have had a huge success in Europe where we are a very, very positive patient experience. And we believe that, that will translate to the US market.

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Yeah, that’s so true, Kiran. I think to add to what Kiran just said, Tushar, we are one of the few players who have been very successful. We’ve got a product launched in Europe. We’ve got over 80% market-share in Germany alone. And we’ve crossed 10% in France, some of the big markets in Europe. So, we’ve come on the back of previous success and we’re quite confident in our product will be received when we launch it in the US.

Tushar Manudhane — Motilal Oswal Securities — Analyst

Sure. And the second question…

Kiran Mazumdar Shaw — Biocon Ltd.

Matt, if you want to make any further comments?

Matthew Erick — Chief Commercial Officer – Advanced Markets

I would just add that we’re in — already prepping with the Viatris sales force. So, we’re getting ready and already getting out there and speaking to key physicians, so that process has starting. We’re now waiting to be able to talk about the key elements that both Kiran and Shreehas spoke about.

Tushar Manudhane — Motilal Oswal Securities — Analyst

Interesting. And secondly, also if you could share some like clarity — or rather visibility on the business from the Vaccines segment.

Matthew Erick — Chief Commercial Officer – Advanced Markets

Your voice is very weak, but I think your — if I understood you correctly, you’re talking about any visibility on the Vaccines business, was that…

Tushar Manudhane — Motilal Oswal Securities — Analyst

Correct.

Matthew Erick — Chief Commercial Officer – Advanced Markets

Okay. Well, we’ve — we had said that we will move past the — once we have got the definitive agreements done, we are in the regulatory phase right now. We’ve secured the approval from the Competition Commission of India. The next phase is to get the National Company Law Tribunal approvals. It requires us to get approval at Karnataka where we based and also for Serum to do it in Maharashtra where they’re based. We’ve in the last — we’re in the last stages that are in Karnataka and Serum has to move their applications to the Maharashtra and as well. That’s still pending.

Tushar Manudhane — Motilal Oswal Securities — Analyst

So effectively, 2Q FY24 could be the timeline to look for?

Kiran Mazumdar Shaw — Biocon Ltd.

Yeah. So, we have not been able to reflect the vaccine numbers this quarter is what I can say.

Tushar Manudhane — Motilal Oswal Securities — Analyst

And lastly, if I may, on this agreement with Zentiva, any commercial outlook or guidance on this business?

Kiran Mazumdar Shaw — Biocon Ltd.

Maybe Sid, you might want to give it?

Siddharth Mittal — CEO & Managing Director

So there is no revenue outlook I can give. On that I can say is, Liraglutide for us is a very important product. It is a differentiated product and we feel we’re very well placed to launch this drug along with Zentiva. At the time of market formation, Zentiva has semi-exclusive rights, so we also will commercialize directly. And we feel that total value of this opportunity will lead aid to the growth in the coming years.

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Alright, thanks. That’s it from my side. Thank you and all the best.

Saurabh Paliwal — Head – Investor Relations

Thank you, Tushar. The next question is from Cyndrella Carvalho from JM Financials.

Cyndrella Carvalho — JM Financial — Analyst

Thanks for the opportunity. I just wanted to understand the $1 billion exiting guidance that you are sharing for the by Biocon Biologics. Can you please help us understand this in more detail?

Kiran Mazumdar Shaw — Biocon Ltd.

Perhaps, Chini, you want to explain it, but let me start by saying that you’ve already seen that we are at a INR1,500 crores level this fiscal for Biocon Biologics and we expect this number when we capture the full financials of the Viatris business in Q4 to cross INR2,000 crores.

Chinappa M.B. — Chief Financial Officer, Biocon Biologics

Cyndrella, morning. Just to make in and put it, INR2000 crores is our expected revenues for Q4, excluding Vaccines. That translates to a run rate of $1 billion per annum. And then as you look into FY24, you need to add growth on the existing molecules, the big opportunity in Adalimumab US and then you add the addition of the — I mean once we get regulatory approval for both Beva and Aspart, we’ll see incremental revenues coming.

Cyndrella Carvalho — JM Financial — Analyst

Thanks for that.

Kiran Mazumdar Shaw — Biocon Ltd.

And of course growth for [Speech Overlap] existing products.

Cyndrella Carvalho — JM Financial — Analyst

Thanks for that. But how should we understand the facility planning? I mean we’re still receiving CRLs and what is our…

Kiran Mazumdar Shaw — Biocon Ltd.

Yeah, but Cyndrella, we are already selling products. Please understand that we are still marketing Trastuzumab, we’re marketing Glargine and we’re marketing Pegfilgrastim in the US. Europe has all products being marketed, so please understand that we are looking at two products that need approvals and these numbers exclude those products. We have actually factored the fact that there may be a delay in that approval. We are hoping that we will get approvals in this calendar year, which will then be incremental to that $1 billion is what we’re saying. So, this — excluding all those products, we are still at $1 one billion run rate, is what we want you to understand.

Cyndrella Carvalho — JM Financial — Analyst

Yeah, so that’s helpful ma’am. Just wanted to understand in terms of where are we — I mean what are the USFDA’s requirement, which is taking or creating these delays, any color that you can help us understand.

Kiran Mazumdar Shaw — Biocon Ltd.

I think we have — I had mentioned that in my comments, saying that are CAPA plan has been accepted by the USFDA and in Malaysia. And we have also provided a CAPA plan for the Bangalore facility, which I’m sure will also be accepted by the USFDA. We are in the process of basically implementing that CAPA plan that USFDA has accepted in the — in Malaysia. And maybe I will ask my colleague — I don’t know whether Michael [Phonetic] is on this call, but I will ask Michael to also add to what I’m saying.

Saurabh Paliwal — Head – Investor Relations

Shreehas, you can pitch in, Michael is not there.

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Yeah, so let me just add to what Kiran just said, Cyndrella. I think what is important to note is that all the facilities that we are talking about are supplying product to the United States already. So, it’s not something that is fundamentally wrong with it is — that’s the first thing that I want to state. These are also products that have been approved like EMA and continue to be commercial in several parts of the world.

The way to look at it is that, certainly there is a greater expectation from the agency, which we’re more than happy to upgrade our standards and meet, and that’s the exchange Kiran referred to when she talked about the engagement. We have provided a comprehensive response to the agency to see how we can meet with their expectation. We’ve got a response back from them saying they accept our proposal. So, that’s why we are quite confident in Malaysia with the Aspart submissions that we’ve made, to be able to resolve it to their dissatisfaction.

We recently received the CRL for Bevacizumab in Bangalore earlier this month. We are quite confident we will be able to get that also to the satisfaction of the agency. These are always standards that we have to work to improve upon. We look at this as an opportunity to improve and strengthen our systems. We do not see this as necessarily a lacuna overall, but an opportunity to strengthen it further. Hope [Speech Overlap].

Cyndrella Carvalho — JM Financial — Analyst

That’s very helpful, sir. Yes, Shreehas, that’s very helpful. Just on the timeline for interchangeability and how do we expect the market formation for Adi, any comments on that?

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Specific training product, Cyndrella, that you’re talking about?

Cyndrella Carvalho — JM Financial — Analyst

Adi, Adalimumab.

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Yeah, so again interchangeability is an important topic to understand how it really plays out commercially. Now we’ve seen already contracting happen in the US where the first biosimilar is not an interchangeable product. And then there will be — and it’s received formulary listing, so clearly it’s not a condition precedent to moving forward. We’ve seen similar things happen on the insulin end as well. So, that’s the first piece, that it’s not mandatory to success on the commercial side.

The second piece which is related to this, how interchangeability plays out in real life is you can have one player who can get interchangeability approval and get some exclusivity post-launch for a period of 12 months, which effectively means, even if you were to have interchangeability approved, you would probably have to wait until that exclusivity runs out. So again, from a commercial standpoint, it would really be another contracting cycle before you can get there.

I would think that interchangeability is something which is nice to have. It is something that we are confident of anyway. But it’s a very US-specific phenomenon. We do not see that in rest of the world. We, as I said before and Kiran rightly pointed out, we’ve seen great success with the product — with Hulio Adalimumab in Europe and we are quite confident that we’ll be able to get that success.

The real piece here is the patient experience and hub services, which Matt can talk to you about in more detail, but it’s about our device and we very confident about the kind of device we’re bringing to the market. It’s a two-click device and which should really be very, very helpful for the patients. So, that really gives us the right to win, Cyndrella.

Cyndrella Carvalho — JM Financial — Analyst

Yeah, thank you so much. Just one last, if I may. And that is on — when do we expect consolidation from the Serum side, timeline I’m asking? Would it be Q1 or as the earlier participant highlighted, it is first half of FY24, what should we try and build in terms of our models?

Kiran Mazumdar Shaw — Biocon Ltd.

Yeah, I think right now we don’t have clear visibility of the regulatory competition, but yes, maybe we can look at next fiscal for that — for those numbers to be consolidated.

Cyndrella Carvalho — JM Financial — Analyst

Thank you so much. I’ll join back the queue.

Saurabh Paliwal — Head – Investor Relations

Thanks, Cyndrella. Next question is from Damayanti Kerai from HSBC.

Damayanti Kerai — HSBC — Analyst

Hi, morning. Thank you for the opportunity. My question is again on Adalimumab. So, you have mentioned, it’s not mandatory for you to succeed in this market, but the interchangeability studies which you have initiated, what is the completion timeline which you are aiming for?

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Damayanti, we can get you the exact dates on the interchangeability study. But as I’ve said, it is — the VVL [Phonetic] dates of this would matter only after the first commercial launch of the interchangeable product, which we believe will be in July of 2023. So until July of 2024, even if you had an interchangeable product, it’s really not going to make a difference.

Kiran Mazumdar Shaw — Biocon Ltd.

And by which time I think we will have the interchangeability label, if that’s your question.

Damayanti Kerai — HSBC — Analyst

Okay, yeah, sure. And this Adalimumab launch which you are prepping for, so in the current contracting cycle, how do you see your positioning so far in view of your discussion with payors, etc.? So once you’re ready to launch — so far like how do you see your reach within these contracting cycles?

Kiran Mazumdar Shaw — Biocon Ltd.

Maybe, Matt, do you think you want to comment on that? You’re mute, you’re on mute.

Matthew Erick — Chief Commercial Officer – Advanced Markets

Yeah, thank you. Sorry. Thank you for the question. Yeah, we are in right where we need to be in our preparation. We are speaking to key payors as well as the — key to these are really four channels, and the first channel is speaking to the payors. And we’re having great discussions as we look for the paying cycle starting in July.

The next piece of this is we’re having additional discussions, as I mentioned, getting out with physicians and understanding our product and the two-click, as well as being citrate-free, latex-free, all those key attributes so they understand our product, Hulio.

The other facet here, and we’re speaking to and we don’t mention a lot but is key to this is the specialty pharmacies. So, we’re starting those discussions with specialty pharmacies. Those are the ones that send a product to patients and act — it’s not really retail component, they act as that pharmacy to be able to get their products to the patient that the doctor has prescribed.

And then Shreehas had mentioned, the other key channel is really the patient services. So how do we help the patient help the physician through the process that they’re used to from the innovator. [Technical Issues] will be standing up, and as I said, we’re having detailed discussions with key payors right now in our anticipation of our launch that will occur in July.

Damayanti Kerai — HSBC — Analyst

Thank you. My second question is on some of the launched biosimilars where you have gained notable market share as commented by Kiran ma’am in her opening remarks. So I just wanted to understand, how do you see pricing scenario for these products although like we have gained market share, but what’s your view on the pricing situation right now?

Matthew Erick — Chief Commercial Officer – Advanced Markets

Shreehas, would you like me to start and then jump in?

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Yeah, why don’t you go ahead, Matt, please?

Matthew Erick — Chief Commercial Officer – Advanced Markets

Okay, great. Again thanks for the question. We do see some of that deflation. But as far as to our models in our plan, they are aligned. And as you look at the different channels, the medical side as well as the pharmacy benefit side, on the medical side in the Trastuzumab and the Pegfilgrastim you’re speaking about, we’re seeing nice steady states in our average selling price. And this has allowed us to continue to grow share as well as to be able to maintain that deflation that is occurring that you’ve seen in the marketplace.

Also, we have an extensive sales force that — where we’re seeing great success in our commercial plans as well as our clinical side. And I think that’s attributed definitely to our sales force and the relationships we have in the understanding of our product and the pull-through. So, I feel we’re in a very good spot based on our modeling and our plan. And also, being vertically integrated we have the staying power as well as we have the broadness of the portfolio. When we think about oncology and the products we have there, we’re in, well, a good position to be able to compete.

Damayanti Kerai — HSBC — Analyst

Okay, so you expect market share to go up further as you push more on the commercial efforts?

Matthew Erick — Chief Commercial Officer – Advanced Markets

We are seeing a nice trend in that continued upside in the market share and it’s showing in the NRx-es and the TRx-es that you can see in the IQVIA data, we’re making good progress.

Damayanti Kerai — HSBC — Analyst

Sure. My last question is, what’s your debt reduction goal? So obviously effort again ongoing there, but anything, say, in next 6 months to one year? How much did you want to reduce on your books?

Kiran Mazumdar Shaw — Biocon Ltd.

So Damayanti, if you will give us a little bit of time, we are in the process of raising this debt and we would like to share it with you once the process is complete. But needless to say that we want debt at a very, very manageable and low level, as much as we can get it to. So, let us share this data with you as soon as we complete the debt — the equity raise.

Damayanti Kerai — HSBC — Analyst

Sure, ma’am. Thank you. I’ll get back in the queue.

Saurabh Paliwal — Head – Investor Relations

Thanks, Damayanti. The next question is from Dhaval Bhalodia [Indecipherable].

Dhaval Bhalodia — — Analyst

Hello, yes, hello, good morning. I have two questions. First question is for most of our current biosimilars, our markets are stuck around higher single digit to the lower double digit except for the LANTUS biosimilar. So, it seems we have now full control of sales and contracting. Is there anything we were doing differently than Viatris used to do so we can increase our market share and penetration?

Kiran Mazumdar Shaw — Biocon Ltd.

Matt, you might want to answer this.

Matthew Erick — Chief Commercial Officer – Advanced Markets

I had a little hard time understanding, but I believe [Speech Overlap]…

Kiran Mazumdar Shaw — Biocon Ltd.

No, basically I think the question being asked is, are we going to do something different to what Viatris is doing to market and get better market penetration. And the answer is yes because — let me start comments by saying that we are looking at dedicated sales efforts for biosimilars, but I’ll leave it to Matt to add to this.

Matthew Erick — Chief Commercial Officer – Advanced Markets

Yes Kiran, absolutely. We are doing more, and we’re seeing the opportunities, particularly in additional customers in the conversation that we’re having. As we mentioned in previous calls, a lot of this is — we have 100% focus and we have some great opportunities as we look at not only the payor side, but the retail pull-through, our ability to talk to physicians. And the integration is going well and we’re continuing to see that progressing as well as being able to talk to new customers, especially as we look at the vertical integration that we have at Biocon Biologics.

Dhaval Bhalodia — — Analyst

Okay, thank you. And second question is, majority [Technical Issues] — yeah, sorry. My second question is, since most of our new biosimilars like Avastin and Humira, we maybe the fourth or fifth player in the market versus first or second in case of the Mirostat [Phonetic] and Herceptin. So, are — we have any particular strategy since we are the fourth or fifth player to address — to come with any particular strategy?

And the second thing, Humira has a wide use, like it’s a dermatological product, is a gastro product, it’s an autoimmune disease product, and most of our biosimilar product is only oncology. So, we have separate sales staff to — for the Humira or any other thing we are doing for that?

Matthew Erick — Chief Commercial Officer – Advanced Markets

Shreehas, would you like me to start and then chime in?

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Yeah.

Matthew Erick — Chief Commercial Officer – Advanced Markets

Great. So, let’s start with our product, Hulio. We are going to be in that what I would call the first wave. Amgen did launch here over the last month or so, but in that first wave, as you know, there is no one going to be exclusive. So, we have a tremendous opportunity to be part of each one of those formularies. Each of the payors has said that they will have at least a biosimilar plus one or plus two and we’ll be in that first wave and have our plans to be able to participate and win with those payors.

So, being exactly a little bit later than Amgen is not in my opinion a hurdle because it’s the way the payors have opened this up and we’re well positioned to win these formulary positions. And then we’re also — as I mentioned, we’re in a good position after winning the formulary with this sales force that we have coming from Viatris and adding to it we have that ability to pull through. And then, we also have a great understanding of the specialty pharmacy and especially pharmacy, as I mentioned, is how the products are dispensed. And then, we’re in the process of continue to stand up and add additional patient services to what we’re developing with Viatris to be able to have the patients have those discount co-pays or the ability for them to get additional services.

So, we’re in a good position with our Hulio product. As Shreehas and Kiran also mentioned, we have history. A lot of our competition doesn’t have history. We have global history and market leadership in Germany, in France, to be able to talk about, as well as our product has that two-click mechanism. And we mentioned that it’s also a citrate-free, which won’t cause any pain at injection site.

As it relates to — I believe you’re asking about the oncology products, we are well established in our sales force as well as our relationships with key physicians. So as we launch products, even though we’re not first, which ideally we love to be first, we have that mechanism and the understanding of how that medical benefit works and to be able to pull that through on the oncology side with our sales force as well as our payor as well as our ASP understanding of how the industry works.

Kiran Mazumdar Shaw — Biocon Ltd.

And I might remind Mr. Bhalodia that Biocon was the Company that received the first USFDA approval for Trastuzumab or biosimilar Herceptin.

Dhaval Bhalodia — — Analyst

Yes, ma’am. Thank you so much and all the best for the whole year.

Matthew Erick — Chief Commercial Officer – Advanced Markets

Thanks.

Saurabh Paliwal — Head – Investor Relations

Thank you Mr. Bhalodia. We move on to Harith Ahamed from Spark Avendus. Please go ahead.

Harith Ahamed — Spark Capital — Analyst

Good morning, and thanks for the opportunity. So, you’d previously guided for a $1.8 billion revenue for Biocon Biologics in FY24 and a $500 million EBITDA. So, are we maintaining that guidance given there is some delay in the closure of the transaction with Serum?

Kiran Mazumdar Shaw — Biocon Ltd.

Yeah, maybe Chini, you would like to respond to this? But basically, I think we will be focused on these numbers that the market has — I mean that we have shared with the market and we will basically look at — as you know, there have been delayed approvals of Aspart and Bevacizumab. We are also trying to catch-up with that particular gap. But we are looking at how to basically stick to these numbers. Of course, this does include, as you know, $300 million of vaccine revenues.

So, I think we will be looking at all these numbers and making sure that we share with you any changes to these numbers. There’s also been an impact of the currency parity between the dollar and euro and dollar and yen. So, I think that also has impacted some of these numbers. But we are trying to see how close we can get to those numbers.

Harith Ahamed — Spark Capital — Analyst

Got it. My second question is on the R&D spend at Biocon Biologics specifically. We see the almost INR100 crores delta on a quarter-on-quarter basis and this with just a month of consolidation of the acquired business. So, how should we think about the spend for next year? Do we still maintain that 12% to 15% of revenues guidance that we’ve given in the past on the much higher revenue base? Is that how we should think about it?

Kiran Mazumdar Shaw — Biocon Ltd.

Yes, I think that’s what I meant by saying that we will see normalization because this quarter you’ve only seen the impact of a month’s contribution from the Viatris business. But going forward, we expect to basically normalized R&D spends to that sort of 12% to 15% levels.

Harith Ahamed — Spark Capital — Analyst

Thank you. And last one with your permission, Siddharth, there is an increase in the share of loss from JVs and associates. And we were under the impression that given that we’ve lowered the stake in Bicara this number would be trending down. We’ve seen an increase on a quarter-on-quarter basis. So, how should we think about this number going forward? Is this a one-off quarter for that particular line item?

Siddharth Mittal — CEO & Managing Director

So, I wouldn’t call it as a one-off. Our shareholding is down to 55% and the expenses of Bicara has gone up as they are in middle of clinical trial and of course, the advancement of the lead program. And we do expect over the next few months for the fund raise by Bicara, which will further dilute our stake. But on an absolute number which we are treating as a loss from associate shouldn’t materially change, because as they progress in clinic, the expenses would go up, they’re also spending money on their pipeline, the follow-on pipeline. Of course, that’s at very early stages. The expenses will not be significant. But just from a model perspective, we expect something in the similar range over the next few quarters.

Harith Ahamed — Spark Capital — Analyst

Got it. That’s all from my side. Thanks for taking my questions.

Saurabh Paliwal — Head – Investor Relations

Thank you, Harith. Next question is from Surya Patra, PhillipCapital.

Surya Patra — PhillipCapital — Analyst

Yeah, thanks for this opportunity. First question is — or couple of questions are there about the — to understand better the integration that — also Viatris operation. So, in fact when we — what we believe that, okay, with this acquisition of Viatris’ biosimilar operation we have seen vertical integration. And theoretically that should have supported gross margin sequentially. But we are not seeing any change this quarter although this is not a reflection of a full-quarter performance of the acquired operations, but is it fair to believe that the gross margin should see a kind of sequential up [Phonetic] move post integration? That is one.

Secondly, I wanted to understand a bit more on the distribution charges what we are paying to Mylan, in which line item that is getting captured, whether it is…

Saurabh Paliwal — Head – Investor Relations

You’re muted.

Surya Patra — PhillipCapital — Analyst

I’m audible?

Saurabh Paliwal — Head – Investor Relations

Yeah.

Surya Patra — PhillipCapital — Analyst

Okay, sorry for that. Then I’ll repeat my question. So though about the integration, some clarity I wanted, so theoretically with the acquisition of the Viatris operation that provides more integrated activity now and hence the gross margins would have seen sequential improvement, but this quarter we are not seeing anything like that. It is a slightly lower on the — sequentially. So, can you give some clarity about should we see and expect a sequential improvement in the gross margins after the integration?

Chinappa M.B. — Chief Financial Officer, Biocon Biologics

Kiran, can I take that?

Kiran Mazumdar Shaw — Biocon Ltd.

Yeah, please.

Chinappa M.B. — Chief Financial Officer, Biocon Biologics

Surya, can you just clarify the gross margin, you mean net of material cost or the core EBITDA which is net of all operating costs?

Surya Patra — PhillipCapital — Analyst

No, net of material cost.

Chinappa M.B. — Chief Financial Officer, Biocon Biologics

Yeah, net of material costs at the BBA level we’ve seen that improvement this quarter where it improved due by 2 percentage points over the last quarter. [Technical Issues].

Surya Patra — PhillipCapital — Analyst

Okay, so then possibly at the Biocon consolidated level, it would be pricing challenges or whatever that we would be seeing, that could be one reason. Is that — the understanding correct?

Kiran Mazumdar Shaw — Biocon Ltd.

Siddharth, you want to take this?

Siddharth Mittal — CEO & Managing Director

Maybe Indranil, you can just…

Indranil Sen — Chief Financial Officer

It’s also — it’s not so much on pricing, but it’s also about product mix. So, we will see a quarter-on-quarter flux because of product mix. This should normalize going forward.

Surya Patra — PhillipCapital — Analyst

Okay, and…

Chinappa M.B. — Chief Financial Officer, Biocon Biologics

Yeah, I’m going [Indecipherable] really looked at the core EBITDA performance, not so much our own gross margins and that for Biocon Biologics it’s at 44% improvement over the last quarter.

Surya Patra — PhillipCapital — Analyst

Okay, so now that practically — including the R&D spend, why, because that is an integral part of our business, and in the next couple of years’ time we are likely to see an upward move only — [Indecipherable] upward number in terms of R&D spend, so the overall margin profiles of Biocon Biologics, how should we see considering also the integration of the acquired operation?

Chinappa M.B. — Chief Financial Officer, Biocon Biologics

The SG&A cost that will come through post-acquisition [Technical Issues] the full effect of this SG&A cost is absorbed in our — when we report our core EBITDA. And as I indicated, we are now trending above 40% this quarter and the previous quarter. So, we see the overall SG&A cost being comfortably [Technical Issues]. Kiran did mention that we are looking at bringing R&D cost down to about 12%. So, you would see EBITDA now then trending towards the high-20s nearing 30, from a margin profile [Technical Issues], if that was your question.

Surya Patra — PhillipCapital — Analyst

Okay, yeah, so…

Chinappa M.B. — Chief Financial Officer, Biocon Biologics

And that’s an improvement, as you can see.

Surya Patra — PhillipCapital — Analyst

Okay. Just last question, let’s say for the biosimilar business, so obviously the key product opportunities what we are having for — let’s say, for FY24 is [Indecipherable] as well as rh-Insulin I believe. So, how should we think, given the kind of a timeline that is there and the regulatory clearance that we are waiting for, so and the contractual cycle also, that is, considering all that, whether these are considered to be the real FY25 triggers for us to grow?

Kiran Mazumdar Shaw — Biocon Ltd.

So let me answer you, Surya, by saying that FY24 certainly is going to focused on the successful Adalimumab launch. And I think we are also looking to see how much we can grow our existing products like Glargine, Trastuzumab and Pegfilgrastim in the US, but also we are focused on making sure that we focus on Europe for all the products that are approved.

As you know, in Europe we have all products approved, in fact we have seven products approved in Europe, of which the real focus up until now has been just to — not all seven. So, we are looking at seeing how we can basically leverage and add to the business in terms of all products in the — in Europe.

So, I think that’s the way we look at the FY24 and of course, we are hoping that Aspart and Bevacizumab will also be approved this calendar year, in which case, obviously there is some contribution to the FY24 for growth. But for FY25 growth will see all these products contributing to strong growth.

Surya Patra — PhillipCapital — Analyst

Sure, ma’am. So just one on the pipeline front, it is — what is our now progress on the Afliber side — Aflibercept front Eylea, and what is the timeline that we are expecting, given the kind of regulatory progress and our preparedness and are positioning compared to competition, that trend?

And also briefly on the generic business front, so there are — there have — means although we are — this year possibly we’re likely to see couple of greenfield projects contributing, but in terms of the growth visibility for that segment, how should one really built into the margins [Phonetic]?

Kiran Mazumdar Shaw — Biocon Ltd.

Shreehas, you want to take this?

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Sure, thanks Kiran. On the Aflibercept assets, Surya, as you know, we’ve exercised the option from when we acquired the asset from Viatris. So, it’s the first-to-file asset. It’s undergone review with the FDA and at this stage we’re currently in litigation with the originator of that product. So clearly, that’s in the public domain. It’s going through that entire pattern, dance cycle. So, we will not comment on the proceedings beyond what’s in the public domain. So clearly, that’s a — that’s an area where we are a leading that effort directly.

We believe Aflibercept is a sizable opportunity, gets us into the ophthalmology space, and we can talk to you more about how we’re going about doing it. But we believe that it would be a nice area for us to build on. Being the first to file does give us the opportunity to look at such a sizable asset, almost $10 billion in revenues. So, this could be something which can really be another game changer for us going forward. So, we are really focused on developing that.

On the second question that you’d asked, I’ll turn it over to Sid to respond.

Siddharth Mittal — CEO & Managing Director

Thanks, Shreehas. And Surya, so we’ve — I think mentioned in her opening remarks that are immunosuppressant facility is undergoing qualification, also the peptide facility is undergoing qualification and we expect the qualification to complete in first half of next fiscal, following which we will of course file with the FDA to include those sites in our DMF and our ANDA. And it would take some time because we expect FDA to come and inspect these facilities.

So, the revenues from these facilities are not expected to commence until FY25. However, the growth will come from the other products what we have already commercialized, some of the new launches which we are expecting in the US, I’m talking about the generic formulation launches and also additional capacities in our existing facilities that we had increased in the last 12 months to 24 months, which will drive volume increase for our API business. So, combination of new launches, increased contracts that we’ve seen recently for statins and immunosuppressants in the US and increased API should drive the mid-teen growth for the next couple of years.

Surya Patra — PhillipCapital — Analyst

[Indecipherable], yeah, thank you. Wish you all the best.

Saurabh Paliwal — Head – Investor Relations

Thanks, Surya. Our next question is from Shyam Srinivasan from Goldman Sachs.

Shyam Srinivasan — Goldman Sachs — Analyst

Hi, thank you for taking my question and good morning everyone. Just the first one on the $1 billion run rate again. Chini, if you could kind of break it down into developed market and emerging market, I remember historically I think emerging market did about $240 million for us. So, just where it is tracking now in that $1 billion number.

Chinappa M.B. — Chief Financial Officer, Biocon Biologics

So of course, you’ve been [Indecipherable] acquisition, we will have Emerging Markets in there. So directionally [Phonetic] as we look forward, 70% of our revenues would come [Technical Issues] 30% for Emerging Markets. Now, Shyam, that is part of your question. Now, if you’re going back to the building blocks for the $1 billion and our — from there on, so in the $1 billion we roughly have — they’re 25% in their Emerging Markets. But going — as we look ahead, we will start to see advanced market pickup to 70% and the Emerging Markets at 30%.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it. So you seem to suggest that the imaging markets will grow faster, right? Once the 25% today — sorry, did I get those numbers wrong?

Chinappa M.B. — Chief Financial Officer, Biocon Biologics

Yeah, like — so — okay, so we are at this business, that’s up the last quarter. As you’ve seen, we were 50-50. As we get INR2,000 crores, we will actually go to 75-25 with Advanced Markets. But as you build on the Emerging Markets, we’ll finally come back at 70-30.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it. And Chini, when we look at the margins for these two segments, is it different or you don’t calculate it that big, given the infrastructure could be common? So just help us understand, does making — splitting this based on these two geographical spreads, does it makes sense or it’s one large monolith that we need to actually look at it?

Chinappa M.B. — Chief Financial Officer, Biocon Biologics

From an operating cost structure, it is one large monolith because our manufacturing plant supply both the Emerging Markets and the Advanced Markets. From an SG&A point of view, the Viatris acquisition will increase our SG&A cost, which is pertaining to the Advanced Markets whereas we expect Advanced Markets has a higher revenue profile, margin and — pricing and effectively a higher margin.

Shyam Srinivasan — Goldman Sachs — Analyst

Helpful, Chini. My second question is to Shreehas. I think you briefly touched about Hulio interchangeability, but what about Rezvoglar, right, which Lilly I think has got an approval recently? I think your exclusivity ends in December, If I recollect right, but correct me. So, do you expect 13%, 14% NRx share? Will that — are we still on track to do the high-teens market share by the end of this calendar year? And is there any competitive activity even beyond Lilly that you think we need to be monitoring?

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

No — thanks, Shyam. I think the — let’s first look at where this is coming from. I think this whole question on interchangeability was about breaking that mix about being able to not just have a biosimilar product, but given that insulin is a chronic therapy, can the patient who is receiving the dose using a innovator product get the same — the numbers on that — the on pen that they would see, would it be the same or would there be a difference and could it be used exactly interchangeably?

So, I think the entire effort was to go past that hurdle and break the myth that there is any concern at all about this. And I think FDA themselves called it a historic movement in how they approved Biocon Biologics simply as the first interchangeable product. So, it needs to be viewed in that lens first, Shyam, to say that, why was it needed at that point in time, to put at rest all arguments that not only is it biosimilar but it can be interchangeably used. Whatever it is that has been prescribed, you can switch it or sub it at the pharmacy level and you will get the same therapeutical [Technical Issues].

I think that is what we achieved over the course of calendar 2022. Before we got the interchangeable incident, of course, there was Rezvoglar in the market and there was this increased market share that they’ve got vis-a-vis Lantus and that was there in the public domain.

The question was about whether Biocon Biologics Viatris, when we brought — our product could do that, we were able to successfully demonstrate that, even going past the regulatory hurdle of being an interchangeable biosimilar and the first one at that.

Going forward, what we really see, and you’re seeing that in the indices that you mentioned, which is NRx-ex, are already trending towards 14% and thereabouts, clearly indicated the acceptance of the product. And now, you will of course expect competitor action, you will also expect some innovator action. But from here on, it’s — you laid to rest the argument about efficacy, about overall effectiveness, immunogenicity, all of that is behind you. And now, it’s a level playing field to go and win the market share.

So clearly, 2023 is about building on all of this and seeing how we can not only grow market shares, get the pull-throughs that Matt talked about in existing formularies, but also getting more accounts to see that we grow that confidence beyond what we’ve got. So, I hope that gives you a perspective of how we are approaching Glargine overall.

Shyam Srinivasan — Goldman Sachs — Analyst

Got it, thank you. And my — just one last question [Indecipherable] — yeah, go ahead Chini.

Chinappa M.B. — Chief Financial Officer, Biocon Biologics

I wrongly classified certain markets, particularly Japan, Australia, New Zealand and Canada. So, if you really look at it, today we’re at roughly between 60% to 65% Advanced Markets and that will go towards the 70%, 75%, particularly with the [Indecipherable] launch and the launch of the new [Technical Issues].

Shyam Srinivasan — Goldman Sachs — Analyst

That’s helpful, Chini. Last question to Siddharth, quickly if I may. The confidence for mid-teens growth I think — and maybe I clarify here, we are only talking mid-teens growth for Generics, right, because every other segment — I think Syngene has their own guidance, I’m assuming — and Biocon Biologics has its own guidance, it looks like. So, the mid-teens you’re referring to only Generics. That is question number one.

And two, what has given us the confidence for this mid-teens growth? I know this quarter we have done 18%. We have grown Q-o-Q also. But has there — but you mentioned in your opening remarks about even generic pricing pressure. So, what’s changed that has given us a little bit better visibility? Is it just the launch momentum in — from our products?

Siddharth Mittal — CEO & Managing Director

Yes, so it’s correct that the mid-teens growth is only for the Generics business. And the confidence is — basis two things, as I mentioned. One is, we have already got certain additional volumes in the US for the formulations we have launched. And we are going to launch additional products in the coming fiscal. We do have a couple of important launches coming up later part of this fiscal itself.

We know that generic teriflunomide, which is a first-to-launch opportunity, even though it’s a competitive market with many players, but we are going to be one amongst others. And we do have a few other filings which were done where we are awaiting FDA approval in the next fiscal. So, that would drive growth in the US. But yes, I did mentioned the pricing pressure does continue. We have seen normalization of pricing pressure more recently with some disruption in the US in supply chain caused by some of these facility issues in — from other Indian companies. So, what was a steeper price erosion last year, we’ve seeing normalizing trend.

And I also mentioned that we are expecting additional volumes to come in from our API business where we had expanded capacities in our existing facilities. And there were couple of, again, important molecules which were launched by our partners in Europe, specifically the later half of this calendar year and 2022 calendar year, and that will drive additional volumes in our FY24.

Shyam Srinivasan — Goldman Sachs — Analyst

Okay, thank you Siddharth and all the best.

Siddharth Mittal — CEO & Managing Director

Thank you.

Saurabh Paliwal — Head – Investor Relations

Thanks, Shyam. Next question from Nithya from Bernstein.

Nithya Balasubramanian — Bernstein — Analyst

Thank you. So on Aflibercept, can you tell us what your TAD date is? I think Viatris had communicated that it’s more than three quarters since said they said they filed the product. Second, would you have already worked with the regulatory agency to ask for a switching study waiver for this product, obviously on the back of what happened with the Lucentis biosimilar?

Siddharth Mittal — CEO & Managing Director

Just a quick thing, I didn’t follow the second question, Nithya, very well. But the first one, given that Viatris’ the first-to-file will be not just linked to market formation — or the market formation will be linked not just to patent expiry in the molecule but also the data exclusivity. So, that runs beyond the patent expiry into 2024. So, we will be watching that date and that will be the date that the FDA can grant your approval. So technically, we can’t grant an approval until the end of day text is [Indecipherable].

Nithya Balasubramanian — Bernstein — Analyst

Understood. So, my second question was, Coherus actually was able to get interchangeability for their Lucentis biosimilar on the back of the immune privilege argument. Have you also made a similar request to the FDA or is this something you’ll do later, just thoughts on that.

Siddharth Mittal — CEO & Managing Director

Yes, I think you will grant us that for competitive reasons, we would not want to share that discussion right now. But clearly, Lucentis is a precedent for most companies to follow at this stage.

Nithya Balasubramanian — Bernstein — Analyst

All right, so one on Adalimumab, Shreehas. I think interchangeability has actually made a difference. It’s made a difference for you in Glargine. It’s making a difference for Coherus in Ranibizumab even though it’s a medical benefit product. So, I’m just surprised with your commentary that you don’t see that as an important factor. But come, let’s say, July 2024, you will have — there are at least four of your competitors who are going after interchangeability for the [Indecipherable]. So in that scenario, how do you see a 40-mg product as being competitive?

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Fair question. And we could we could argue it several different ways. First thing, I will point you out there to do the success that we’ve enjoyed and I’m limited right now to Adalimumab in Europe where we’ve seen success regardless of whether you had or didn’t have interchangeability. So that’s one point just to look at.

The next thing to see and classify the US market, also for Adalimumab, you’re seeing the first product being put on the formularies not having interchangeability, clearly not a condition precedent to being listed on the formulary. So, that is the second piece that I would point you to.

Point number three, you would have almost five of us launching on, I would say, effectively the second wave of launch — or the first wave of real launch after the first innovator. So, not everyone — actually other than one company will have — nobody else will have interchangeability and almost every [Technical Issues] in the US has publicly stated that they would have at least an N of two if not an N of three, which means the signal is that it’s important to have and nice to have an interchangeable product. Certainly, it gives you the advantage, nobody is saying you shouldn’t have it. But it’s not going to give me the sole determinant of commercial success. I think that was the context to my comment. If it lead you to believe anything different, then I would like to correct myself there.

Nithya Balasubramanian — Bernstein — Analyst

Thanks, Shreehas. Just to follow-up on the fact that formularies are actually not restricted and they’re fairly open in terms of the number of biosimilars they’re adding. So if, let’s say, there are two or three biosimilars at parity with Humira, which is what — which is the sense we are getting from some of the peers’ commentary, then does your commercial muscle therefore become more important? If there are two biosimilars and Humira at the same out-of-pocket expense level, what will help you differentiate [Technical Issues]?

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Yeah. And I’ll let Matt respond to this in a little more detail, because I think there’s a lot of questions around this, but I think the first piece is the — getting onto the discussion — what gets you to the table is price. Interchangeability, as we discussed just now, is something which is nice to have. But what will determine success and pull-through is going to be the device that you have, whether it is the citrate-free, latex-free product that will reduce [Technical Issues] reactions and how are you going to be able to provide patient services, so that you do not have a pushback from the patient to the payor or the prescriber that they’re now comfortable given that they’ve got so many options now.

I’ll let also Matt talk about the specialty pharmacy piece, because given that you’ve got so many options in the US now, there is an opportunity that you can get subbed even if we were to get prescribed. But I’ll let Matt — maybe, Matt, you can comment and give Nithya a little more color on this.

Matthew Erick — Chief Commercial Officer – Advanced Markets

Yeah, Shreehas, you explained it very well. I’ll just add a few other key attributes to that. One thing to remember, interchangeability is only to the innovator and we’re watching very closely how that shapes up. Ad you are correct in your comment that it is an important piece of the commercial side to be able to have those relationships, have the doctor understand the product itself and what we have in our Hulio product. When they write that name of Hulio on there, it’s in a great position for us.

And I don’t want to underestimate, there is a lot that we have to understand, which we are, and there is a key component of this that’s a little different than what we’ve seen prior and that is the specialty pharmacy. And so, there are relationships that we are growing, establishing and understanding the economics there as well so we’re not subbed at that pharmacy — specialty pharmacy level.

So, I’ll reiterate, the four key components of winning in Hulio is definitely giving the economics right on the payor side, understanding the ability for the sales force to create those relationships, have the physicians and patients comfortable with our Hulio product in the two clicks and the other attributes, thirdly is making sure we understand and develop and continue to work with specialty pharmacy. And at the end of this if you aren’t standing up, which we are, the right patient services to be able to support the physician as well as to be able to support the patient, then we’ll see people fall down.

And I — as we go through these, we have a great understanding, especially of what Viatris has already built and we’re adding to that for that growth to be able to be very competitive, whether it’s interchangeable or not interchangeable as we think of the different channels that we have to be successful.

Nithya Balasubramanian — Bernstein — Analyst

Sorry, thank you for that, [Indecipherable] on mute. One last quick one, if I may, on the SIID [Phonetic], I think your guidance was $300 million revenues and that was in the context of COVID vaccines at $3 to $4 pricing. Now, we know that the COVID vaccine demand has come off, so I’m assuming you will be selling a different set of products. That being the case, does the margin guidance of 35% EBITDA still stand, $100 million to $300 million revenue?

Kiran Mazumdar Shaw — Biocon Ltd.

Well, that is the agreement that we have, Nithya. So, I don’t think there will be any change to this.

Nithya Balasubramanian — Bernstein — Analyst

Got it, thank you so much.

Saurabh Paliwal — Head – Investor Relations

Thanks. Next in line, Sameer Baisiwala from Morgan Stanley.

Sameer Baisiwala — Morgan Stanley — Analyst

Hi, thank you and good morning everyone. Siddharth, can we talk about positioning on Liraglutide Phonetic] in the US market? And second is where you see the market formation in both US and Europe?

Siddharth Mittal — CEO & Managing Director

So thanks, Sameer. I think very good question. And I would like to first emphasize our focus on peptides as a Company. We see a huge opportunity in peptide. I mean, today the peptide market is almost growing to $15 billion in sales globally, and we expect by 2035 this to be a $60 billion opportunity in sales. And just I’m talking about three or four key peptides, whether that’s semaglutide, Liraglutide or tirzepatide. And we are very uniquely positioned. We have already done the — our filing in the US. We have seen — received our comments from the FDA and we are working on addressing the questions that FDA has. And we expect to hear back from FDA soon.

But the market formation as it’s publicly known, there are couple of settlements for launch in the US for Victoza, which is the diabetes indication. There has been no settlement yet for Saxenda, which is for weight loss and growing steadily. But from whatever at least available in public domain, we’ve heard that the launch is expected in end of 2024/early 2025. We are still under litigation with no one order, so Biocon has not yet settled. But we expect to be in the market, as I mentioned, end of calendar 2024, early 2025.

Now from a competitive positioning perspective, we have seen couple of other generic companies file this drug, starting with 2016 and there have been couple of filings in late 2018, 2019 and 2021, and none of the competitors have received approval. We believe that we are very well positioned with the scientific data that we’ve provide to the FDA.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. And you have filed for both Victoza and Saxenda?

Siddharth Mittal — CEO & Managing Director

That’s correct. We’ve filed for both Victoza and Saxenda.

Sameer Baisiwala — Morgan Stanley — Analyst

And what is the market formation date in Europe?

Siddharth Mittal — CEO & Managing Director

Europe is around the same time period, end 2024, early 2025.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, and broadly, for other peptides, have you done the filings or what would be the flow as we go forward?

Siddharth Mittal — CEO & Managing Director

So semaglutide, which is the follow-on molecule for Liraglutide, is under development. We’re of course late to be LC-1 [Phonetic] filer, but we do expect to file in time to be in the market on 181-day for semaglutide. Of course, there are three different formulations for semaglutide with the market opening up starting 2029, 2030 and the market of some of the formulations going as late as 2032.

The other drug that we’re working on, and again at different stages of development, is tirzepatide. As we know, this is expected to be a wonder drug contributing almost $25 million to $30 million in sales. And we are targeting to file this product as a day-one on NC-1 [Phonetic] date. So, there’s lot of effort going on.

We have a very robust pipeline of peptides. I just discussed three, but we have a pipeline of peptide, which is more than 10 numbers, and it’s again at different stages of development. And we are adding incremental capacities to our peptide API manufacturing facilities. So, what we mentioned at the beginning of the call, the large volume peptide facilities commissioned the validation is going to start and we are already looking at doubling the capacity of that facility in the next 12 months because we see a huge opportunity in the volume growing globally for peptides.

Sameer Baisiwala — Morgan Stanley — Analyst

[Technical Issues]. And have you [Technical Issues] any other peptide other than lira?

Siddharth Mittal — CEO & Managing Director

Not yet.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay And you’d be doing third-party API sales [Technical Issues] that could be a big opportunity [Technical Issues].

Siddharth Mittal — CEO & Managing Director

Yes, that would be a huge opportunity. In fact, we have seen some of the early filers in the US, they had got their API from that — peptide specialist companies and the main concern that FDA had was on the characterization of the API and the quality of the data that supported the API. And we’ve been in discussions with some of these filers to qualify our API source and their file. And we have seen very encouraging. results when they have — we’ve supplied them quantity to help them with the analysis. And they of course have a comparison of our API with the other API and we feel we’re very well positioned in terms of the quality of our API.

Sameer Baisiwala — Morgan Stanley — Analyst

Sorry, have we crossed that bar with the FDA with your API, or…

Siddharth Mittal — CEO & Managing Director

We have received comments from FDA asking for certain questions on our API and we’ve — we are in the process of addressing those questions. And we think every — most of the questions are addressable. We do not see any showstopper in our API quality in terms of the questions that the FDA has asked.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great, thank you so much. One final from my side. It’s on BBL. Kiran, what’s the plan for private equity raise? I think you did mention a bit about it, but anything concrete over there and the subsequent IPO that you were thinking of?

Kiran Mazumdar Shaw — Biocon Ltd.

Yeah, so Sameer, obviously we are in advanced discussions with private equity investors. And as I mentioned, we will be sharing that information with you with more clarity and granularity when we’re going to be close to signing up because I think it’s not right on me today to talk about that at this stage. But suffice to say that we are in advanced discussions for equity raise to [Indecipherable] date — acquisition date.

The other point is that…

Sameer Baisiwala — Morgan Stanley — Analyst

The IPO.

Kiran Mazumdar Shaw — Biocon Ltd.

As far as the IPO is concerned, we are obviously focused on the right timing of the IPO, and it will be based on a number of triggers. So, we will be looking at some of these triggers in terms of either product approvals, market performer and those will really determined the timing of the IPO. Because the moment we start seeing robust growth, I think that is the time for us to move to the market.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. Kiran, if I may, I know that it’s not…

Kiran Mazumdar Shaw — Biocon Ltd.

And in any case, Sameer, as you know, we do need to go through the integration process before we can initiate any IPO activity. So, I think from that point of view, I would like to focus on integration and then start the IPO preparations immediately thereafter.

Sameer Baisiwala — Morgan Stanley — Analyst

So it looks like 18 months or thereabouts?

Kiran Mazumdar Shaw — Biocon Ltd.

Yeah, it could be sooner but definitely not earlier than 12 months.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. And Kiran, if I may, the valuation benchmark which have been set for BBL based on the previous sounds of private equity be and the conversion for Viatris, those stand. That is a benchmark for the new rounds of infusion?

Kiran Mazumdar Shaw — Biocon Ltd.

Well, what I would like to comment is to say that definitely the IPO valuation stands as has been discussed for the Viatris transaction, that absolutely stands. And we will be we funding based on how things play out in the market.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great, thank you so much.

Saurabh Paliwal — Head – Investor Relations

Thanks, Sameer. Next is Neha Manpuria from Bank of America.

Neha Manpuria — Bank of America — Analyst

Yeah, thanks for taking my question. Shreehas, could you give us some color on the filing timeline for Stanicuzumab [Phonetic], Deno and Pertuzumab since we have just started trial for that one too?

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Sure, Neha. So, we’ve — we are right now in a Phase I Case [Phonetic] III trial Pertuzumab. We guided earlier that end 2023, we should be able to get to filing, For Denosumab, we got Prolia and Xgeva. We again are doing a combined Phase I and Phase III trial. We’re looking at an end 2024 filing for Denosumab. And since you asked about Pertuzumab, we’ve just announced that we’ve gotten into the clinic for a Phase I study that we’ve started with that asset. And as we progress more into that, we will be able to give you more clarity on the filing dates.

Neha Manpuria — Bank of America — Analyst

Yeah, sorry about that. And on the emerging market piece, based on the 35%, 40% that it’s contributing currently, what’s the expectation of growth, given the amount of launches for Trastu and the insulin portfolio that we are making there? Would the emerging market piece, including the Viatris portfolio grow mid-teens, high-teens? What is the expectation there — or not Emerging Market, ROW, ex-US, Europe rather?

Kiran Mazumdar Shaw — Biocon Ltd.

Susheel, do you want to comment on that?

Susheel Umesh — Chief Commercial Officer – Emerging Markets, Biocon Biologics

Yeah, sure. Along with Viatris, both of us put together, the growth would be in the range which you have mentioned. Overall, the good things will happen right now is between both of us in the past, Viatris and us, we’ve had strengths in different areas, we were stronger in the partner driven insulin market area and Viatris is very strong with their Trastu and Beva portfolio. And they also had foot in the ground in different markets. So both together I believe that the growth will be quite significant in the Emerging Countries. And we will continue to do well as we are doing.

The key focus of the Emerging Countries will remain what it always has been. We want to create access in more number of countries and we want to go deeper in the countries where we’re already present. So, I think with the Viatris portfolio and the existing portfolio that we have, the growth will be around the numbers which you have mentioned.

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

So just to add to what Susheel said, Neha, we continue to see significant growth in the — in what we’ve called as the BBL markets in the past where we were structured prior to the closure of the acquisition, and that trend continues. It of course gets better with the Viatris additions to the markets that we’ve been getting so far. But the question — if you were to now look at what has become — Biocon Biologics is now a much sizable pie which has a larger contribution from Advanced Markets than we had before. So as a percentage, you may see that change. But in terms of — on a standalone basis these markets will continue to show growth.

Neha Manpuria — Bank of America — Analyst

Fair enough, Shreehas. And last question, on Pegfilgrastim with one of our competitor biosimilars likely to see the on-body injector launch sometime in the course of the year, does that impact our ability to take incremental market share? Do you see some of the biosimilars probably shifting to the on-body injector along with the innovator shift?

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Well, see, Pegfilgrastim US has been a very — it’s a very different market. Innovator action has been very unique where we’ve seen the very aggressive pricing behavior on behalf of the originators. So, that’s one aspect. So it’s a very different dynamic that we’re seeing there.

We also had said in the past that given the pandemic, which was an unexpected, unprecedented event, the on-body injector held onto market share which was disproportionately for a period of time. It even went up beyond 56%, 57%. But we are now seeing that come off to about 45% or lower than that. So, you’re clearly seeing that it’s certainly a nice to have. The originator continues to hold that market share competition that you reference — you referred to just now. It’s likely to eat into that market share but would also release more into the syringe opportunity, which will be for us to look at.

Some of the indicators that you would see from the recent market information that have come in, is many of these market shares that been lost by players who had taken away aggressively — who had gone for market share has actually now started to lose that in the syringe market and we’re seeing that pickup in Biocon Biologics.

So, we will see a steady increase because we’ve always looked at holding on to a value maximized opportunity rather than just chasing market shares which always ASPs versus market shares at loggerheads and we’ve always placed — played that balancing that act all through and we continue to do that.

Neha Manpuria — Bank of America — Analyst

Understood. Thank you so much, guys.

Saurabh Paliwal — Head – Investor Relations

Thank you, Neha. We’ll take Nehal [Phonetic] next. Nehal, you are on mute, if you’re asking a question.

Unidentified Participant — — Analyst

Hello?

Saurabh Paliwal — Head – Investor Relations

Yeah, go ahead.

Unidentified Participant — — Analyst

Yeah, good morning, everyone. Actually, ma’am, I want to speak in Hindi in Hindi so everyone can understand. Yeah, actually [Foreign Speech]?

Kiran Mazumdar Shaw — Biocon Ltd.

[Foreign Speech].

Unidentified Participant — — Analyst

[Foreign Speech].

Kiran Mazumdar Shaw — Biocon Ltd.

[Foreign Speech] we will focus on business delivery, business growth. [Foreign Speech] share price or investors [Foreign Speech]. company biosimilars — world-class biosimilars [Foreign Speech].

Unidentified Participant — — Analyst

Definitely. [Foreign Speech].

Kiran Mazumdar Shaw — Biocon Ltd.

[Foreign Speech] 36% growth [Foreign Speech] $1 billion exit trajectory [Foreign Speech] Biologics business [Foreign Speech] Zoom call [Foreign Speech].

Unidentified Participant — — Analyst

[Foreign Speech].

Kiran Mazumdar Shaw — Biocon Ltd.

[Foreign Speech].

Unidentified Participant — — Analyst

Definitely.

Kiran Mazumdar Shaw — Biocon Ltd.

[Foreign Speech].

Unidentified Participant — — Analyst

[Foreign Speech].

Kiran Mazumdar Shaw — Biocon Ltd.

[Foreign Speech].

Unidentified Participant — — Analyst

Definitely. [Foreign Speech]. Thank you very much.

Kiran Mazumdar Shaw — Biocon Ltd.

Thank you.

Saurabh Paliwal — Head – Investor Relations

Thank you, Nehal. We have a follow-up from Cyndrella from JMFL.

Cyndrella Carvalho — JM Financial — Analyst

Thanks for the follow-up. Siddharth, this is for you. You helped us understand the pipeline, especially on the peptides side. I want to understand the commentary on the profitability, EBITDA margin side, how should we look at it and what is the, if any, guidance that you can provide on the EBITDA side? We have seen some sequential improvement in this business. However, the formulation business in US still has a lot of pricing challenges. So what is your view on that?

And just one more addition to that, is the newer facilities which are commissioning, how much of opex and depreciation it will add to our P&L over there? And is it something significant that we need to consider?

Siddharth Mittal — CEO & Managing Director

So, I think let me answer your second question first. The facilities — the new facilities are — will be capitalized once we have received approvals from the FDA, which is expected in FY25. So, I do not expect any significant impact in FY24 from these large facilities or opex coming in. I think I’ll be in a better position to quantify and give timelines I think as we move along in a few quarters.

In terms of the first question, of course, the pipeline, we are making good progress. We do see the pricing impact our EBITDA margins. Core EBITDA margins were in the range of 21% to 22% for the Generics business, and we are investing roughly 8% to 9% of revenues in R&D. So, that reduces the EBITDA to anywhere around 14%, 15% and the PBT which we reported is around 10% to 11%. I do expect the margins to continue at these levels. We’ve — of course, the margins are also dependent on the quality or the product mix we supply to our customers.

We’ve had to few high — very profitable products which were supplied to our customers in quarter three. So for example, Fidaxomicin which we supply to Merck or Tacrolimus which we supply to some of our customers in the US. So, we have seen a good product mix in quarter three. But going forward, of course these could be lumpy. In some quarters, there might be no delivery of higher profitable products. So, we would see a fluctuation, but on a long-term basis, I would still say that we will — till we get one of these blockbuster peptide, we will expect the margins to continue in the same range.

Cyndrella Carvalho — JM Financial — Analyst

That’s very helpful, Siddharth. And coming to just a confirmation on Serum, whenever the transaction is clear from the regulator regulatory aspect, we will be able to see the booking from 1st October, 2022, is that understanding correct?

Siddharth Mittal — CEO & Managing Director

It’s correct, the effective date would be October 1, once the court…

Cyndrella Carvalho — JM Financial — Analyst

Yeah, and as ma’am highlighted, the tracking of $300 million is as per the agreement, that is also clearly understood, right?

Siddharth Mittal — CEO & Managing Director

Yes.

Cyndrella Carvalho — JM Financial — Analyst

Any additional capex on both the side that we’re seeing because from our Generic business side you have highlighted we main need to double peptide, but any capex that you would like to give a number on that?

And on the additional site in terms of Malaysia, do we see the second phase beginning or what is the status there from a capex perspective? That’s it from my end.

Siddharth Mittal — CEO & Managing Director

So generics I expect capex to be around INR700 crores to INR800 crores per year, which includes the incremental capacities on our fermentation — non-immunosuppressant fermentation plants, peptide as well as the injectable facilities that we’re building. And that should continue for the next 1 year to 2 years. And over to Chini for the Malaysia piece…

Chinappa M.B. — Chief Financial Officer, Biocon Biologics

Cyndrella, we’ve written a guidance of $100 million to $150 million capex per annum. This year we have spent $70 million. Most of the spends this year and next year is towards the Malaysia Phase II expansion.

Cyndrella Carvalho — JM Financial — Analyst

Thank you so much, and thank you everyone. All the best.

Siddharth Mittal — CEO & Managing Director

Thank you.

Saurabh Paliwal — Head – Investor Relations

Thanks, Cyndrella. We’ll take the last question from Sajjat Puria [Phonetic]. Please go ahead.

Unidentified Participant — — Analyst

Yeah, hi, thanks for the opportunity. So my question was on the Syngene stake. Are there any plans for further dilution in the future?

Siddharth Mittal — CEO & Managing Director

No.

Shreehas P. Tambe — CEO & MD, Biocon Biologics Ltd.

Not in the future. We are down to 54.9, but we do not have any plans.

Unidentified Participant — — Analyst

Okay, thanks.

Saurabh Paliwal — Head – Investor Relations

So, that was the last question for this earnings call. I thank everyone for joining us today. If you need any further assistance or clarification, please do reach out to us. Have a good rest of the day. Thank you.

Kiran Mazumdar Shaw — Biocon Ltd.

Thank you.