Biocon Limited (BIOCON) Q4 2022 Earnings Concall Transcript

Biocon Limited  (NSE: BIOCON) Q4 2022 earnings concall dated Apr. 29, 2022

Corporate Participants:

Aishwarya Seetharam — Head, Investor Relations

Kiran Mazumdar Shaw — Executive Chairperson

Nikunj Mall — Head, Investor Relations

Shreehas P. Tambe — Deputy Chief Executive Officer

M.B. Chinappa — Chief Financial Officer

Siddharth Mittal — Chief Executive Officer and Managing Director

Matthew Erick — Chief Commercial Officer, Advanced Markets

Abhijit Zutshi — Commercial Head, Global Generics

Susheel Umesh — Chief Commercial Officer

Analysts:

Damayanti Kerai — HSBC — Analyst

Surya Patra — Phillip Capital — Analyst

Harith Ahamed — Spark Capital — Analyst

Prakash Agarwal — Axis Capital — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Ankush Mahajan — Axis Securities — Analyst

Nithya Balasubramanian — Sanford Bernstein — Analyst

Tarang Agarwal — Old Bridge Capital — Analyst

Unidentified Participant — — Analyst

Presentation:

Aishwarya Seetharam — Head, Investor Relations

Good morning, everyone. I’m Aishwarya Seetharam from the Biocon Investor Relations team. And I would like to welcome you to Biocon’s Earnings Call for Q4 and Full Year FY ’22. I would like to indicate that all the participants will be in a listen-only mode. And there will be an opportunity for you to ask questions after the opening remarks conclude. Should you need to raise questions, please select the raise hand option under the reactions tab of your Zoom application. We will call out your name and unmute your line to enable you to ask the question. While asking, please begin with your name and your organization. Please note that we will not be monitoring any questions on the chat box, but you can raise any technical concerns that you may be facing for our support to help. I would also like to bring to your attention that this conference is being recorded and the recording will be available on our website within a day. The transcript for this call will be available within the next five working days.

To discuss the company’s business performance and outlook we have with us today the Biocon leadership team comprising of Dr. Kiran Mazumdar Shaw, our Executive Chairperson, and other senior management colleagues.

I’d also like to take this opportunity to remind everyone about safe harbor. Today’s discussion may be forward-looking in nature based on the management’s current beliefs and expectations. It must be viewed in concurrence with the risks that our business faces that could cause our future results, performance or achievements to differ significantly from what is expressed or implied by such forward-looking statements. After the end of this call, if you need any further information or clarifications, please do get in touch with Nikunj or me.

I would now like to turn the call over to Dr. Kiran Mazumdar Shaw. Over to you, ma’am.

Kiran Mazumdar Shaw — Executive Chairperson

Thank you, Aishwarya. Good morning, everyone. I welcome you to Biocon’s earnings call for the fourth quarter and the full-year fiscal FY ’22. I would like to start this earnings call on the note of optimism on the back of a strong performance in the year that has just concluded. Biocon reported revenues of INR8,397 crores or $1.1 billion this fiscal. This year Biocon has entered into a transformative acquisition with its long-term partner Viatris to acquire its biosimilars business portfolio for USD3.335 billion. This is in order to create a vertically integrated structure that will ensure an efficient value chain with embedded agility and competitiveness. We believe that this deal will enhanced Biocon’s position as a true biosimilar powerhouse.

At Biocon, our key priorities of patient centricity and access to all drive our decisions and the way we operate. ESG has now further assumed the greater prominence in our business objectives. Recognizing our sustainability practices, a global sustainability rating agency placed Biocon in the Bronze category with an overall score of 52 as against 35 in the previous year.

Let me emphasize the fact that our pipeline or our research pipeline is our lifeline. We continue to invest significantly in research and development to drive long-term business growth. Towards this objective, we invested over INR700 crores in R&D this fiscal to advance our development programs in the biosimilars and generics area. During this quarter, two of our wave 2 biosimilar molecules Bevacizumab and Itolizumab moved into the clinic. We also continue to build a strong pipeline of niche formulations such as injectables as well as peptide and profiled APIs in our generics business. We believe these investments will help us further our pursuit in providing high quality and affordable healthcare accessible to all whilst we drive further value creation.

Next slide, let me now turn to the Board update. Before I discuss the performance of the business, I would like to share a Board update. I’m pleased to welcome Naina Lal Kidwai, a veteran banker and a business leader, as an additional Director on the Board of Biocon Limited. An MBA from Harvard Business School she is the recipient of several awards and honors including the Padma Shri for here contribution to trade and industry. She is a past President of FICCI. She retired in 2015 as Chairman of HSBC, India and Executive Director of HSBC Asia-Pacific. We look forward to Naina’s leadership, which we believe will provide a strong impetus to our growth journey.

I will now present the key financial highlights, starting with the quarter and followed by the full-year. At a consolidated group level revenues for Q4 FY ’22 grew 21% year-on-year and 11% sequentially to INR2,476 crores. Revenues from our biosimilars business delivered a strong year-on-year growth of 48%, while that of our generics business grew at a healthy rate of 26% and research services revenue grew by 15%. Our gross R&D spend was at INR232 crores, an increase of 70% over last fiscal corresponding to 14% of revenue ex-Syngene. Of this INR191 crores is expense in the P&L, while the rest has been capitalized.

Core EBITDA margin, which is EBITDA margin net of licensing, dilution gain on account of our startup Bicara, mark-to-market loss, forex and R&D was higher at 33% compared to 32% in the same quarter last year on account of an improved performance in both biosimilars and generics. EBITDA for the quarter was INR659 crores, reflecting a 3% year-on-year growth. The EBITDA margins stood at 27% as against 31% reported in Q4 last fiscal, primarily due to, as explained earlier, the higher R&D spends in biosimilars and generics during the quarter.

Exceptional items for the quarter included professional fees towards the Viatris deal. Profit before tax and exceptional items for the quarter stood at INR384 crores, up 9% over INR353 crores during the same quarter last fiscal. Net profit for the exceptional items for the quarter stood at INR262 crores versus INR247 crore — INR257 crores last fiscal. And net profit adjusting for exceptional items stood at INR239 crores. Adjusting for the mark-to-market loss on investments and gain on dilution in Bicara on a like-to-like basis, growth and margins will be far higher compared to the same period in the previous fiscal, which translates to 37% growth in core EBITDA versus reported growth of 11%, 32% growth in EBITDA versus reported growth of 3%, 75% growth in profit before tax and exceptional items versus reported growth of 9% with a 5% higher margin, 176% growth in net profit before exceptional items versus reported growth of minus 6% and 5% higher margin.

Let me now turn to the full-year financial highlights. At a consolidated group level, revenues for FY ’22 were INR8,397 crores versus INR7,398 crores, a year-on-year growth of 14%. Adjusted for the gain from dilution in our Bicara state, the overall revenues grew by 16%. Revenues from our biosimilars business delivered a strong year-on-year growth of 24% and our research services grew at a healthy rate of 19%, while revenues for our generic business remained flat. We recorded a forex gain of INR58 crores this fiscal. A loss of INR28 crores arising on account of mark-to-market loss on investments is also reported this year.

For this fiscal, we also recorded a gross R&D spend of INR711 crores, which is 13% higher over last fiscal and corresponds to 13% of revenue ex-Syngene. Of this INR595 crores is expensed in the P&L, whilst the balance has been capitalized. Core EBITDA margin, as explained earlier, stood at 32% compared to 31% last year on account of an improved performance by biosimilars. EBITDA for the fiscal was INR2,183 crores, reflecting a 14% year-on-year growth with a consistent EBITDA margin of 26%.

Exceptional items for the year included provisions for export incentives, impact on modification of terms of certain debt instruments and professional fees towards the Viatris deal. Profit before tax and exceptional items for the year stood at INR1,094 crores, up 4% over INR1,055 crores last fiscal. Net profit before exceptional items stood at INR722 crores versus INR744 crores, whilst net profit for the year after exceptional items stood at INR648 crores versus INR740 crores reported in FY ’21. However, as explained earlier, on a like-to-like adjustment EBITDA growth was 25% versus the reported growth of 14% and the growth in core EBITDA was 18% versus 10%.

Let me now turn to segmental business performance during the quarter and for the full-year. Let me start with generics, the Generics segment delivered revenues of INR717 crores during the quarter, a year-on-year growth of 26% and a sequential growth of 18%. Profit before tax for the quarter was at INR116 crores versus INR73 crores last year and INR67 crores in the previous quarter. Profit before tax margins were higher at 16% as against 13% last fiscal and 11% in the previous quarter. The improved business performance in Q4 was driven by key factors, namely a ramp up in API sales, new drug product launches in the U.S., particularly Everolimus, and the operational — and the normalization of operational challenges that we had faced earlier in the year.

On a full-year basis, the Generics segment delivered revenues of INR2,341 crores compared to INR2,363 crores is the previous fiscal. Profit before tax stood at INR261 crores versus INR291 crores the previous fiscal. The segment witnessed a muted performance given the COVID-led operational and supply challenges at the start of the fiscal, which started running to normalcy in the second half of this fiscal. However, profitability continued to be impacted by higher logistics and input cost, particularly raw materials, solvents and fuel. Pricing pressure headwinds in several markets further added to this impact.

During the quarter, approvals were received from the U.S. FDA for Posaconazole, an anti-fungal drug, as well as Dorzolamide, an ophthalmic product, which were also recently launched in Q4. We continued to expand in emerging markets and commenced our first commercial supplies of Tacrolimus capsules to Mexico. We also received our first approval in Singapore for Tacrolimus and in the UAE for Rosuvastatin and Tacrolimus. In January this year, we also had a successful regulatory site inspection at our API manufacturing unit located in Biocon Park Bengaluru by Health Canada. We are on track to qualify and validate our greenfield fermentation-based immunosuppressant API manufacturing facility at Visakhapatnam.

We also plan to augment our existing API manufacturing infrastructure in Hyderabad and Bengaluru as well as set-up a new injectable facility in Bengaluru. As part of our sustainability focus, we have diversified our renewable power consumption to include both solar and wind energy. We are confident to grow our generics business in FY ’23, supported by new product launches and our expanded manufacturing capacities. Whilst we continue to be resilient, we are cognizant of potential headwinds, such as pricing pressure and rising input costs, and we will continue to focus on building cost and operational efficiencies to sustain growth.

Now, coming to biosimilars, Biocon Biologics recorded revenues of INR982 crores for Q4, a year-on-year growth of 48%. Core EBITDA excluding R&D, forex, licensing income and mark-to-market loss on investments stood at INR382 crores, up 78% year-on-year. Core EBITDA margins increased from 33% in Q4 last fiscal to 39% this quarter, demonstrating continued healthy profitability. EBITDA for the quarter was up 56% year-on-year at INR257 crores, and profit before tax and exceptional items stood at INR144 crores, up 109% year-on-year. I’m also pleased to say that our Malaysia operations became profitable for the first time this quarter.

Moving on to full-year performance, Biocon Biologics recorded revenues of INR3,464 crores in FY ’22, a year-on-year growth of 24%. This is — this rate of growth is much faster than the 21% witnessed in FY ’21 and this, I might add, is in line with our guidance. We witnessed significant improvement in profitability at all levels this year. Core EBITDA for the year was at INR1,320 crores, up 30%. Net R&D expense for the year was at 9% of revenue, in line with FY ’21. EBITDA for the year stood at INR1,013 crores, a year-on-year growth of 35%. Profit before tax and exceptional items has grown by 49% year-on-year and the growth in profits is attributable to higher revenues and improved margins.

Let me now share some highlights of the biosimilars business. The most significant growth driver has been our 351(k) interchangeable biosimilar insulin Glargine in the U.S. market, which has attained a double-digit market share at the end of this quarter. Viatris expects to calendar year 2022 with mid to high-teens in terms of market share. Ogivri’s market share in the U.S. reported consistent improvement during the year attaining double-digit. Fulphila U.S. market share was resilient despite a highly competitive market. In Europe, both these products continue to witness gradual improvement in performance. Abevmy, our biosimilar Bevacizumab was launched in select European markets during the year, further bolstering our oncology franchise.

Continued improvement in the performance of our existing products coupled with potential U.S. launches of biosimilar Aspart, Bevacizumab and Adalimumab will enable the current Viatris-led business to deliver robust growth over the next two years. Our economic interest in Viatris collaboration products will significantly increase once we consummate the deal with Viatris. We’ve seen impressive growth in our B2B and BFI business. We have recently been awarded a three-year contract for Insugen in Malaysia valued at approximately USD90 million. We expect our B2B business to be bolstered by the integration of the Viatris transaction, allowing us to target our largest segment of emerging markets. The Branded Formulation India business recorded a year-on-year growth of 35%. We expect that the continued focus on sales force excellence, brand building and KOL engagement will generate sustainable growth for the business.

Moving onto pipeline updates, we have advanced two unpartnered wave 2 biosimilar molecules into the clinic, namely Denosumab and Ustekinumab. We’ve exercised the option to acquire Viatris’ rights in biosimilar Etanercept as a part of the transaction. Viatris filed the first biosimilar of Etanercept in the U.S. Our portfolio of next wave of biosimilars will address the market opportunity of approximately $20 billion to drive growth in the medium term. The Viatris and Serum deals are progressing towards regulatory approvals. We expect these closure in the second half of the calendar year 2022.

In summary, Biocon Biologics has delivered strong revenue and profit growth this fiscal. Combining the Viatris biosimilar business with BBL accelerates the build out of our commercial capabilities in developed markets in order to become a strong global brand. Vertical integration will drive operational efficiencies and business agility, thereby underpining cost competitiveness. The vaccines alliance with Serum and our continued investments in R&D adding products to our portfolio adds-up new growth — opens up new growth avenues for Biocon Biologics in the coming years.

A brief now on Novels, Equillium, our partner, initiated a pivotal Phase 3 clinical trial of Itolizumab in patients with acute graft versus host disease or GVHD in March this year. The randomized double-blinded study will assess the efficacy and safety of Itolizumab versus placebo as a first-line therapy for acute GVHD in combination with corticosteroids. Our Boston based associated Bicara initiated dose expansion cohorts evaluating its lead molecule BC101 in patients with head and neck squamous cell carcinoma, squamous cell carcinoma of the inner canal and cutaneous squamous cell carcinoma. In February 2022, Bicara has secured the first round of seed funding from external investors to support the clinical development of BCA101 and other pipeline assets.

Coming to the research services, revenue from operations stood at INR758 crores for the quarter, indicating a year-on-year growth of 15%. Profit before tax for the quarter was at INR179 crores against INR158 crores in Q4 previous fiscal, which is a growth of 14% year-on-year. For the full-year, revenue from operations stood at INR2,604 crores, indicating a year-on-year growth of 19%. Profit before tax for the quarter increased by 19% — for the year increased by 19% year-on-year to INR515 crores. The fourth quarter growth was also driven by performance across all divisions development services and particularly a strong quarter as it caught up on the projects delayed due to supply chain issues and other COVID-related disruptions. Phase 3 of the expansion plan at the Hyderabad research facility was completed during the quarter and the facility now accommodates around 500 scientists. Further expansion is being planned in the year ahead.

Let me now conclude by saying that as we come out of the pandemic with a strong performance, I would like to announce that the Board of Directors have recommended for approval by the shareholders a final dividend of 10% of face value of each share for the financial year 2022. I’d like to conclude by saying that the year head holds tremendous promise for all our business segments. The most significant growth is expected to come from the acquisition of Viatris’ biosimilars business as well as through the vaccine alliance with Serum.

And with this, I would like to open it up to Q&A.

Questions and Answers:

Nikunj Mall — Head, Investor Relations

Thank you, ma’am. Should you need to ask a question, please select the raise hand option under the reaction tab of your Zoom application. We will call out your name and unmute your line to ask the question. The first question is from Damayanti Kerai from HSBC.

Damayanti Kerai — HSBC — Analyst

Hi, good morning. I hope I’m audible.

Kiran Mazumdar Shaw — Executive Chairperson

Yes.

Damayanti Kerai — HSBC — Analyst

Okay. Ma’am, my first question is on biosimilars. We have seen good pickup in prescription volume, most of the launch products. But when we look at the sales, reported sales for fourth quarter, sequentially it’s looking flat despite having full quarter benefit of simply. So can we have some clarity there, whether it’s due to more squeezed on the pricing, how is the pricing environment for most of the launch products, especially insulin Glargine.

Kiran Mazumdar Shaw — Executive Chairperson

So let me start by saying that the insulin Glargine business is showing a strong pickup like you mentioned. And as has already been reported from a 3% market share in the earlier part of the year, we are now registry double-digit market share in — by the end of the fourth quarter. Yes, I think there has been almost like a flat performance of biosimilars in Q3 and Q4, but you must understand that this is no reflection of the kind of market improvement of the business. Q1 tends to be slightly sort of lower quarter in terms of being able to pull out growth as such. But regardless of that I would like to mention that our biosimilars business is tracking in the right direction. We have not seen a greater growth because of certain tenders which open up later in the year. Like for example, we just won that from Malaysia which obviously will start only reflected in our numbers in the year ahead.

I would like perhaps my colleagues Shreehas to add to what I’d said.

Shreehas P. Tambe — Deputy Chief Executive Officer

Thanks, Kiran. I think Damayanti you had two questions, one is to see why these numbers have been more or less flattish and a concern if this has anything to do with pricing pressure in the U.S. And I think that let me address the first part of it, the part related to pricing. We do not see the pricing pressure at all on this aspect what a formulary distinct through Viatris and that’s something that we’ve seen, staying consistent in the year. So that’s really quite second piece there. I think the aspect related to the flattish numbers that you talked about, let me draw your attention to the earlier part of the fiscal where we had a run rate of about INR750 crore to INR800 crores in the early part of the year as our revenues for the quarter, which we drove through in Q3 in that INR950 crores, INR980 crores range which is largely on the back of the launch supplies for our 351(k) interchangeable insulin.

What you saw in Q4 effectively is the ramp up of that market share from what Kiran just said which we ended at less than 3% last year to actually the secondaries moving up from there to into that 10% of the teams as we would say as we move it forward. What will happen going forward is you will see that market share strengthen further and the profit share starting to move into the coming quarters towards the later half of the year. That’s really how that market is expected to shape. So, you will see us breaking through from that INR750 crore, INR800 crore quarter range to the INR950 crore, INR980 crore and then the subsequent quarters you’ll see us getting passed INR1,000 crore mark in the first two quarters, and then ramping up further. So I would say that the way to read this is over a wider horizon rather than just a sequential number over one quarter pass through.

Damayanti Kerai — HSBC — Analyst

That’s helpful, Shreehas. And my second question is again on the pricing environment for some of the product which we are anticipating to launch say Bevacizumab once we get the final FDA approval. So what we saw numbers reported by some of the competitors in the similar space. I guess, the volumes were steady to growing, but even they mentioned declined in ASPs. So can you comment on pricing for some of other biosimilars where we are looking to enter.

Shreehas P. Tambe — Deputy Chief Executive Officer

Yeah. So, let me, I think Damayanti one of the important things to note is that the pricing overall as it being same for a very long time. We do you see pricing trending towards a decline, which is also a factor of the competition that we see increasing with number of players there, which is expected when you have this kind of a market condition. But as you rightly pointed out the CAGR in terms of the volume growth in the U.S. alone has the around that 4%, 5% range and in Europe even higher at around that 14%, 15% range. So the opportunity, the underlying opportunity is sizable, is still growing and very few players who really had the opportunity to offer a complete product portfolio like we would have once we completed with Bevacizumab as we come in, once we get the agency to inspect us, in one of the key changes from what we had discussed with you last time is that now we have the agency pass that dialog that we’ve had visiting us in Q2 of this year and we should hopefully get passed under the approval stage shortly which then allows us to partake in this sizable opportunity alongside other players. So, it will certainly be an upside, which we had expected to happen in ’22, but now that the agency has finally able to make it to Bangalore, we will see that happening as we go along.

Damayanti Kerai — HSBC — Analyst

Thanks. And my last question, then I’ll get back in the queue. Some of the programs which I think we discussed during ma’am’s opening remark, they’re entering to clinics, so in line with that we have seen gross R&D jump in 30% sequentially. So over next 12 to 15 months, how should we look at R&D spend as more and more of these programs progress in the clinical trials?

Kiran Mazumdar Shaw — Executive Chairperson

Shreehas?

Shreehas P. Tambe — Deputy Chief Executive Officer

Yeah. I can respond to that. Chin, would you want to talk about the R&D spends overall? Damayanti, let me give you a flavor of how we progressed. If you looked at how the R&D spends have been for the course of fiscal ’22, our programs, we had said, will be moving into the clinic towards the end of the year and that’s exactly what we’ve announced today and you’ve seen two of the major assets get it to the clinic. We’ve announced Denosumab as well as Ustekinumab get into the clinic and you will see the R&D spends moving up in line with the progress of these molecules. But I let Chin talk to the specifics on what those numbers would contribute towards into the P&L.

M.B. Chinappa — Chief Financial Officer

Yeah, yeah. This year we ended at 9% as Shreehas just said. But as we seeded two new products entering the clinic we expect R&D spends to increase in the coming quarters. Of course, the additional revenues from the vaccine at the Serum deal and the Viatris deal will help us increase our investments in R&D as we progressed our next wave of biosimilars. Overall, we expect R&D investments to be around 10% to 15% of revenues going forward. Of course, quarterly distributions will be lumpy.

Damayanti Kerai — HSBC — Analyst

Thanks. I’ll get back in the queue.

Nikunj Mall — Head, Investor Relations

Thank you, Damayanti. We will request all the participant to limit to two questions only and we can follow-up with additional questions. The next question is from Surya Patra from Phillip Capital.

Surya Patra — Phillip Capital — Analyst

Yeah. Thanks for this opportunity and congratulations for the good set of numbers ma’am. My first question is again on the biosimilar sales. Say in fact the sequence and flatness what we are witnessing in the biologics sales despite the ramp-up what you have mentioned about the ramp up in the prescription for interchangeable insulin, which obviously not have witnessed any pricing pressure as such and even in the previous quarter we had witnessed a delta of almost like $30 million in the biologics sales, so which — the profit share of which would have come this quarter despite that end — the branded pricing of this interchangeable insulin. Despite all these three factors, we have not seen any sequential improvement, it is just that flat deals. So, although you have responded to that question, but I’m still not listening. So, can you just clarify a bit more on it.

Kiran Mazumdar Shaw — Executive Chairperson

So I think I just want to add to what Shreehas said and then Shreehas can add to what I’m seeing. I think he mentioned very clearly that you have to look at this in context of what the sales volumes were before the Glargine kicked in. So they were at roughly the INR700 crores, INR750 crores kind of range in the first two quarters and now they bumped up to almost INR1,000 crores. So that is the addition of the Glargine sales for these last two quarters, and obviously we expect a further ramp up to take place, because as you know, two of our programs, which was Aspart and Bevacizumab had been delayed in terms of approvals for various reasons largely attributable to U.S. FDA not being able to come and inspect our facilities. So I think you can expect the ramp up to really happen in the coming fiscal. So, I think to really contextualize it on a sequential growth may not be the right way of looking at what Glargine has done for the business. Shreehas, you want to add to it?

Shreehas P. Tambe — Deputy Chief Executive Officer

Yeah. Just, thanks, Kiran. I think, Surya, just to comment further on what I had said earlier and what Kiran just said, I think the way to look at this would really say that Q3 would essentially have marked the launch supplies as the same product from Malaysia into the channels. So making sure that that drove one sort of launch supplies into January 2022 as we brought the product into the market and to view Q4 essentially as that shift in market share as it moves from that 3% into that 10% as we left March 2022. So, effectively, you’re seeing one as the quarter where we actually did the channel stock supplies and then the other one where you’ve seen increase in market shares as the secondaries have gone up. And what you will see happening through the course of the year as the market share ramps up further is you’ll see a cumulative effect of launch supplies transiting into repeat supplies and then increase profit share as the market share goes up. So I would say that to repeat not to look at it as just a sequential one quarter, but take a broader view of two or four quarter horizon, which then gives you a fuller picture on an annualized basis than just a sequential part, given the sizable shift that we will see in the U.S. market because of the 351(k) interchangeable Glargine.

Surya Patra — Phillip Capital — Analyst

Sure, sir, thank you. This is useful. My next question is on the small molecule side. You have mentioned about your entry into the injectable API manufacturing as well as further emphasizing on that expansion and the fermentation based APIs. And there is obviously on the integrated formulation business also that we are witnessing there is a steady progress. So I think this space looks really interesting in the global market from here given whatever the global situation that we are witnessing. But that is also matching with your aggression towards building capability. So if you can just give some sense on this business, see, let’s say, two to three year time given the ongoing project and anticipated project on the injectables and the complex product side. So what is the thought process there and what growth contribution that we should be seeing over next three-year time from this space.

Siddharth Mittal — Chief Executive Officer and Managing Director

Let me take that, Surya. But let me probably give a broad context before I specifically answer your question. As I have alluded to in the past that we have a very — I mean, you all are aware that we have a very strong capability and manufacturing capacities in the fermentation space since last two decades and we have — we are building on to post capabilities by adding peptides, high-potent oncology APIs, as well as large scale synthetic APIs that’s purely from API perspective. As we forward integrate we have formulations are spreading across oral solids, injectables and various other forms of formulation and we are of course creating pipeline, a very strong pipeline in terms of differentiation and the complexity of these molecules. We are not chasing a large number of filings, like many other generic companies do. And now we are looking at forward integrating as well as we do source API from outside if we find an attractive opportunity for differentiated formulation.

Now, as we add to the pipeline, we of course need a manufacturing capacities and today we do have couple of injectable products which are manufactured in our biologics manufacturing site and couple of CMOs. But as we get closer to the launch we of course will have our dedicated facility for small molecule injectables and the construction on this facility is what’s going to start this quarter. We also have, as you know, expanded our immunosuppressant API manufacturing capacity in Vizag where the commissioning is almost complete and the validation start this fiscal, but that is only for immunosuppressant and we also see a huge potential for non-immunosuppressant APIs and that’s where the mentioned is that we are expanding our existing fermentation facilities in Biocon Park, where we will significantly enhance our capacities, and the third is we are building a very large scale synthetic API manufacturing facility in Hyderabad.

Now, with all these investments and expansion of pipeline, advancement of our pipeline, of course, we will see a good growth coming in in the next couple of years. I would not specifically give a number for next three years, but in fiscal ’23 compared to fiscal ’22 which we saw was flattish in an overall year compared to FY ’21, but in FY ’23 we definitely expect a growth to be there as some of the capacity enhancement projects are complete. We expect to start supplying from these facilities. We also expect launch of new products in the U.S. in FY ’23 and I’m quite hopeful that we’ll be able to deliver double-digit growth in the next fiscal.

Surya Patra — Phillip Capital — Analyst

So, on the CapEx front for this sir, can you give some sense. Are becoming bit more aggressive in terms of capacity — because of your capacity expansion plans are you becoming more aggressive on CapEx front here?

Siddharth Mittal — Chief Executive Officer and Managing Director

No, we’ve — I have always indicated that we are going to be spending roughly $100 million of CapEx in a year for three years. So overall guidance has been $300 million of CapEx over a period of 2020 to 2024 and we stick to that guidance.

Surya Patra — Phillip Capital — Analyst

Sure, sir. I have couple of question. I’ll come in the queue.

Nikunj Mall — Head, Investor Relations

Thanks, Surya. The next one is from Harith Ahamed from Spark Capital.

Harith Ahamed — Spark Capital — Analyst

Good morning. Thanks for the opportunity. My first question is on the vaccine alliance with Serum. I believe you had talked about revenues of almost $350 million from this alliance for FY ’24. So with commercialization expected from second half FY ’23, do we have visibility on which are the products and the markets. I’m asking because this is almost 20% of the $1.8 billion pro forma revenues that you’ve guided for FY ’24. So it’s a significant share of that. So, any color that you can provide will be helpful.

Siddharth Mittal — Chief Executive Officer and Managing Director

So let me respond to that by saying that obviously this is not a particular segment of vaccines. We have access to the complete portfolio of vaccines. As you also know the Serum Institute has recently received regulatory approval from the European agencies, the Australian agencies, Health Canada and they’re also hopeful of getting U.S. FDA regulatory nod for their Novavax vaccine. It is not just the COVID vaccines that we’re looking at, we’re looking at many other vaccines. And we remain committed to making sure that these numbers are a part of our future revenues. And I think we are very confident that Serum Institute will provide these revenue numbers going forward. So as you yourself have mentioned the numbers will only get reflected from the latter half of FY ’23 and then the full-year numbers will get inspected from FY ’24, but Serum Institute is very confident of providing us these revenues.

Harith Ahamed — Spark Capital — Analyst

Thanks. That’s helpful. My next one is on Bicara. So, will you be able to share Biocon stake in Bicara post the current — post the dilution which happened during the quarter? What I’m trying to understand is if there’ll be a lower PAT loss pick up next year and this was around INR200 crores in FY ’22, just trying to understand if this number would be lower in FY ’23. And then if you can also give a sense of the valuation at which this round of fund raise happened at Bicara.

Siddharth Mittal — Chief Executive Officer and Managing Director

Harith, the fund raise is not yet complete. So I don’t want to discuss about the evolution right now, because it’s still the discussions are going on. While we have raise certain amount in March, there is also additional amount being raised in this month, and there is also discussions going on, as I said to raise for the — in this quarter. But after the all the rounds are completely we Biocon would just be around 50% of equity in Bicara.

Harith Ahamed — Spark Capital — Analyst

Okay.

Siddharth Mittal — Chief Executive Officer and Managing Director

So, by June end, you can expect that Biocon will be accept.

Harith Ahamed — Spark Capital — Analyst

Yeah. And then last one with your permission. We have — when I look at the R&D spend there is roughly INR300 crores of R&D spends outside Biocon Biologics, which I believe is primarily the generics business. So if you could confirm that the INR300-odd crores of R&D spend ex-Biocon Biologics is primarily the generics business and some indication of the split between generics and novel biologics. And then secondly the spends, the R&D spend for Generic segment, how should we think about that for FY ’23 and beyond, because currently the profitability of our generics business is on the lower side and that’s primarily because of the higher R&D spend is that we’re doing for that business as ANDA filing ramp up, but is there a case for some kind of operating leverage kicking-in in the generics business as the R&D spends flatten out or will it continue to increase is what I’m trying to understand.

Siddharth Mittal — Chief Executive Officer and Managing Director

R&D spend in FY ’22 was 12% of revenues. So, to be precise is roughly INR250 crores on generics. Novel was a very small number because Bicara of course is not considered and the expenses on Bicara molecules are not part of R&D and the only spend that we have is on Itolizumab and partially on Tregopil that’s a very small number. So, for next year I would continue to hold guidance between 12% to 14% of generics revenue as R&D guidance.

Harith Ahamed — Spark Capital — Analyst

Okay, got it. That’s all from my side. Thank you very much.

Nikunj Mall — Head, Investor Relations

Thanks, Harith. The next question is from Prakash Agarwal from Axis.

Prakash Agarwal — Axis Capital — Analyst

Yeah, hi. Good morning to all. Thanks for the opportunity and congratulation on good numbers. My question is on — the first one is on clarification on the R&D. When you say 10% to 15% of sales, normally you said biopharma sales, so from second half onwards we will have Serum sales coming in and we would have probably Viatris also kicking in. So when we say 10% to 15%, is it at what base, is it biopharma ex of these or?

Shreehas P. Tambe — Deputy Chief Executive Officer

Chinni?

M.B. Chinappa — Chief Financial Officer

Prakash, as I clarified earlier, it is on the total revenues, including…

Prakash Agarwal — Axis Capital — Analyst

Ex-research services.

M.B. Chinappa — Chief Financial Officer

Yeah, sorry, on the total biopharma, biologics revenues that includes current BBL revenues, the new revenues from Viatris and.

Prakash Agarwal — Axis Capital — Analyst

Right, okay, great. So, and the new molecules that you have mentioned the two new additions in the biosimilar pipeline, what is the approx cost come in for doing these now. I mean, in the past it had ranged from $50 million to $200 million. Currently, I mean, when we are looking at this, what is the R&D budget approx we have for these kind of molecules. And correct me if I’m wrong these are spread over four, five years.

M.B. Chinappa — Chief Financial Officer

Yeah, two, three years, but roughly along those lines $50 million to $100 million ballpark.

Prakash Agarwal — Axis Capital — Analyst

Okay. Because why I asked this is because when I see the competitive landscape there are few players already in Phase 3, we have entered clinical now. So I’m trying to understand that we could be little late in the game. What is management thought process here?

Kiran Mazumdar Shaw — Executive Chairperson

So we are trying to basically see how close we get be to the LOE date on both these programs. We may not quite meet LOE dates, but we are trying to see as close as we can to be the LOE date. But suffice to say that yes there are a few companies who have entered into Phase 3 trials, but we also have a strategy to see how quickly we can catch up.

Prakash Agarwal — Axis Capital — Analyst

Okay, fair enough. And the background of this 10% to 15% R&D guidance which is fairly broad, what kind of margins we are looking at? I mean, would it be similar to what we are already having or is there a chance of inching up given the pipeline and insulin Glarine and other products start kicking-in in a significant manner?

M.B. Chinappa — Chief Financial Officer

Prakash, I still encourage you to really focus on the core EBITDA, as you call it, before R&D.

Prakash Agarwal — Axis Capital — Analyst

Yeah, yeah, core, whatever you can I mentioned. So in the core side also, do you think that margins could inch up ex-R&D as well?

M.B. Chinappa — Chief Financial Officer

I would, I mean, keep it in the same lines. Of course as we consolidate the Serum and Viatris business, we have giving you our guidance for FY ’24 that will give you the real picture of the combined business, the guidance that we had laid out for FY ’24.

Prakash Agarwal — Axis Capital — Analyst

Okay, lovely. Thank you. That’s all from my side. All the best.

Nikunj Mall — Head, Investor Relations

Thank you, Prakash. Next question is from Sameer Baisiwala from Morgan Stanley.

Sameer Baisiwala — Morgan Stanley — Analyst

Hi, thank you very much, and good morning, everyone. Just for the end market products biosimilars in the U.S. So what’s the outlook — revenue outlook for Pegfil and Trastu for fiscal ’23? Basically, I’m just trying to get to the volume price dynamics.

Shreehas P. Tambe — Deputy Chief Executive Officer

Sameer, in my knowledge we’ve not properly given out product by product specific sales guidance and numbers. Chiny, do you have any additional color to that.

M.B. Chinappa — Chief Financial Officer

Sameer again at point to the guidance had given post to Viatris acquisition. We had indicated that FY ’23 growth will be biased towards assembly and our FY ’24 would be the full benefit of plus the launch of Beva and Aspart. So these are the key drivers of revenue growth before Adali kicks in. We have not currently modeled growth around the other products. Of course, we’ll continue to pursue opportunities there.

Sameer Baisiwala — Morgan Stanley — Analyst

Sure. I guess, I’m just trying to see what’s the framework. I mean, do these products trend down gradually or you think there is still some room to grow there? I’m not looking at any specific number, just philosophically how do you guys think about this.

Kiran Mazumdar Shaw — Executive Chairperson

So maybe we could ask Matt Erick to basically comment on that.

Matthew Erick — Chief Commercial Officer, Advanced Markets

Yeah. I think if you look at our oncology portfolio there is opportunity in both of those areas as we add Bevacizumab to continuing to grow that oncology portfolio. There is a great foundation there that really understands the buy and bill. Of course, there is some downward pressures, but it’s also in regards how are you looking at this space and how can you continue to grow based on the market share piece. So we have a great foundation to do that and I think that will give us that opportunity to continue to grow in that market and be successful.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. And the second question is about the contracting outlook for insulin Glargine for calendar 2023. I’m just trying to — not trying to get to any market share number. I’m just trying to understand how does the system work. Do you retain your current contracts that you are enjoying in 2022 and then build over it or do you start all over again any flavor on that would be great.

Shreehas P. Tambe — Deputy Chief Executive Officer

Matt, do you want to talk to that?

Matthew Erick — Chief Commercial Officer, Advanced Markets

Yeah, sure. Thanks, Shreehas. Thanks for the question. Look, all those relationships are important. And again leveraging the franchise from a standpoint in diabetes to continue to grow that and grow that portfolio is very important as you deal with payers in that diabetes space, and we’ll continue to work with them as we add additional products within diabetes.

Sameer Baisiwala — Morgan Stanley — Analyst

No, no, Matthew. I’m not asking about adding new products, I’m asking about the current in-market products. How does the system work? Is there a — how does the contracting for 2023 will work? You start all over again or do you build on the current contracts and grow that?

Matthew Erick — Chief Commercial Officer, Advanced Markets

Sure. Thank you for that. Sorry about that. Look, the contracts do come up each year. But once you’re in that contract position, you do have an advantage from that standpoint to renew, because you’re in that position in regards to current payers and the formularies there. So we’ll continue to maintain those relationships in that market share and then continue to build upon that with an additional payers as we go into the following years.

Sameer Baisiwala — Morgan Stanley — Analyst

Yeah. That’s great, Matthew. That’s very clear. And one final question from my side. How are we thinking about Aspart in terms of resolution of the pending CRL and the regulators visit to our facility? And do you think you can still be in time to contract for calendar 2023 for Aspart?

Shreehas P. Tambe — Deputy Chief Executive Officer

Thanks Sameer for that question. As you know when we have received the CRL we had pointed out to the two aspects that the agency had has raised a question, one was regarding the Deno that is used particularly for a small segment of pediatric patients largely when you did it alongside the vial and the other one was related to further updates on the CAPA actions that we had provided for the observations that the agency had made during the inspection. Now, we have been in constant dialog with the agency and we’ve responded to the CRL based on the conversations that we’ve had with the agency earlier this month. So our response to the CRL has been send. And we expect the agency to now move on that to see that it gets stewards approval. Whether it will be exactly in time for the formulary contracting cycle, that’s our hope. I know we’ve discussed that before as well. But that’s the discussion that will be ongoing with the agency be unfair on our part to probably commit on behalf of the agency on when they’ll will be able to put the product.

Nikunj Mall — Head, Investor Relations

Thank you, Sameer. Next question is from Ankush Mahajan from Axis Securities.

Ankush Mahajan — Axis Securities — Analyst

Thank you, sir. And congrats for good set of numbers. My question is, there is a fall in gross margin that’s especially in gross margins. So what is the impact on gross margins if there is any fall in realizations? I want to say if you see in the U.S. market in Trastuzumab we have gained the market share and Semglee we have gained the market share. So just gaining market share due to the fall in realizations, any impact on gross margins.

M.B. Chinappa — Chief Financial Officer

Ankush, hi. Just speak specifically for the biosimilar business, we have seen improved margins this year. Our core EBITDA margins has gone up from 36% to 39% for the full year FY ’22 and Q4 margins also in line with that margin the full year average.

Ankush Mahajan — Axis Securities — Analyst

Sir, would you throw some light on this generic business? The Q4 growth is 17%. That’s a good growth. How do you see the competition in the generic segments sir going onwards, especially the price erosion and no doubt there is a new launching and new launches are there, but whatever the price erosion. How would we see that our growth in this generic business.

Siddharth Mittal — Chief Executive Officer and Managing Director

Ankush, I already mentioned to address this in a previous question that we do expect new launches coming up next year both in our API business as well as formulation business which should drive double-digit growth. From a pricing perspective, there are headwinds in the market, especially in the U.S., there are many, many reports already there that continued pricing pressure it has impacted on the generics. We have also been impacted. You have to choose that you continue to be part of that pricing pressure, continue to lower your prices or you opt out of some of these tenders and of course we have to do both depending on the circumstances. But I can also request Abhijit who heads our Generic Formulations business to add his perspective.

Abhijit Zutshi — Commercial Head, Global Generics

Thank you, Siddharth for that. Yes, you’re right. I think you summed it correctly that the pricing pressure is there. And the key is to our new products and we are planning for new launches, both through dual strategy of in-licensing products as well as internal pipeline kicking. So you would see more launches as we grow in this business.

Nikunj Mall — Head, Investor Relations

Thank you, Ankush. The next question is from Nithya Balasubramanian from Bernstein.

Nithya Balasubramanian — Sanford Bernstein — Analyst

Thank you. First one is actually on Humira. There are obviously multiple factors at play here interchangeability, the citrate free formulation, the low dose versus high dose. So, two questions, one is what is Viatris’ product presentation? Are you likely to go after interchangeability at some point? And two, based on your recent conversations with payers, what are you picking up is important factors is interchangeability important how important?

Shreehas P. Tambe — Deputy Chief Executive Officer

Thanks, Nithya. I think this is a topic of interest for everyone. I think we’re watching this closely as well. I think let’s get the two key things out of the way first. I think one aspect is to have the right product formulation, which is as you rightly said the citrate free formulation and that’s something that we can confirm that this has been able to secure and the other thing is to see that we get the approval for all indications and that’s something that we can confirm as well. So I think that out of the way you basically now looking at the other variables that are under discussion which are, whether it’s the strength of the formulation, whether it’s interchangeability to the device versus the syringe and I think these are conversations, which are currently ongoing with also the citizen petition that’s been filed at this point in time. And different players will probably launch with the different approach, some with the high strength, some with low, some with an interchangeability study and some without.

I think the nuance here is that why the agency will provide targets on some of this in the coming days is the interchangeability aspect here although important probably the only commercially relevant to the first player would have exclusivity for a period of one year post launch and that is really going to happen with the first player getting into the market. There will be others who will conduct similar studies, and we’ve seen other players have that as well. But the aspect of making a difference commercially will play out only at year-ends considering that interchangeability is a consideration for a product of this type. But given that there are going to be close to a dozen players 10 or 11 players in this opportunity with the binding a sizable as it is. I think there is going to be a room for almost everybody one to play.

If you want to look at the question that you asked on what are we hearing from payers, I think there is still that wait and watch in terms of how the market is going to shape up and what is the offering that each player is going to bring to the market. But clearly, as I said before, there is going to be ample opportunity for everyone to play because of the size of the opportunity that we’re talking about.

Nithya Balasubramanian — Sanford Bernstein — Analyst

Shreehas, can I summarize that as maybe 2023, you might not see as much biosimilar penetration as you would anticipate given that payers are likely to want to wait to see what is the product presentation who has interchangeability, who doesn’t.

Shreehas P. Tambe — Deputy Chief Executive Officer

No, I think that would be probably jumping the gun to say whether there be sizable or not. I think there will be a pure entry with Amgen entering first as we now know publicly and then a whole bunch of companies entering towards the second half of the year. And while each one will have a different proposition, I would refrain from commenting on commercial strategies and how we expect to win in the market and I probably reserve it for a later date as we get closer to launch.

Nithya Balasubramanian — Sanford Bernstein — Analyst

My other question was also, are you likely to chase interchangeability?

Shreehas P. Tambe — Deputy Chief Executive Officer

So this is another aspect, as I said, we will — we have been watching this closely and given that the timing of the interchangeability study really matters to only the first player and then anything else is really a year later from them. We are committed to doing whatever it takes to be successful in that and interchangeability study is one of those things that we would be considering as well.

Nithya Balasubramanian — Sanford Bernstein — Analyst

Got it. One last one on vaccines. I think there were reports last week that Serum Institute is sitting on a large pile of vaccines with not enough takers. So now that you are closer to kicking off the deal with SII, what is your latest visibility on your ability to push the 100 million doses in the year for the COVID vaccines?

Kiran Mazumdar Shaw — Executive Chairperson

So as I mentioned, Nithya, it was not just about COVID vaccines. So, yes, whilst they sitting on stock of basically the Covishield vaccines, I don’t think they are sitting on such a large stock of other vaccines.

Nithya Balasubramanian — Sanford Bernstein — Analyst

Sorry, correct me if I’m wrong. I thought FY ’23 and ’24 is COVID and what’s in the pipeline is likely going to…

Kiran Mazumdar Shaw — Executive Chairperson

No, no, I’m saying that the stock that he’s talking about is the Covishield vaccines. They also make, as you know, Novavax and all the other vaccines, which are non-COVID as well and what we are — we have access to is every vaccine that’s they manufacturer. So I would not draw any conclusions from the statement he has made just on Covishield vaccine overstocking.

Nithya Balasubramanian — Sanford Bernstein — Analyst

Kiran, sorry, I’m just going to push a bit of clarity here. When you say all other vaccines as well, are you talking about the MMR and the MR and the typhoid vaccines as well that SI is producing? Do you have access to those in the near-term?

Kiran Mazumdar Shaw — Executive Chairperson

Yes, everything is what we have access to. But I just want to caution you that don’t draw conclusions from the statement that he has made which really pertains to Covishield vaccines.

Nithya Balasubramanian — Sanford Bernstein — Analyst

Understood. Thank you.

Nikunj Mall — Head, Investor Relations

Thanks, Nithya. Next question is from Surya Patra from Phillip Capital.

Surya Patra — Phillip Capital — Analyst

Thanks for the follow-up. So in fact for the Malaysia plant you mentioned about that achieving positive profitability this year. Could you clarify what is the number revenue in terms of EBITDA from that setup, because potentially that should see a kind of meaningful improvement in FY ’23 that is the first question.

Shreehas P. Tambe — Deputy Chief Executive Officer

That’s you may want to take it. You’re on mute.

M.B. Chinappa — Chief Financial Officer

Sorry, Shreehas. Just give a perspective of how Malaysia is ramping up and I’ll share the numbers. But Surya did you have a second question. I didn’t hear.

Surya Patra — Phillip Capital — Analyst

Yeah, so I have a second question as well. So I just wanted to have a sense. So, say on the biosimilar, this new biosimilar user fee app what it has been approved, so do you think greater competition that would be likely to come in the overall biosimilar space and more and more interchangeability opportunities will be competing with each other. And hence the way the competition that we have witnessed in our normal generic business, chemical based generic business, similar trend can possibly emerge in the biosimilars space, is that a concern or there is some opportunity that you find from the biosimilar user fee app.

Kiran Mazumdar Shaw — Executive Chairperson

So let me first take a shot at answering your question. First and foremost we are watching the interchangeability space. I might also mention here that Biocon is a front runner when it comes to having a combined portfolio of insulins and mabs, which I think is a unique portfolio offering that we have. And we do believe that we have this early-mover advantage in the insulin’s interchangeability space. We’ll look at obviously the mab interchangeability and have a strategy for that. But I think these are early days and we will have to see how we can basically take advantage of interchangeability or not.

Surya Patra — Phillip Capital — Analyst

Sure. And about the Malaysia plant sir if you can respond.

Shreehas P. Tambe — Deputy Chief Executive Officer

What was your question about the Malaysia plant? I thought Chinni had already.

Surya Patra — Phillip Capital — Analyst

Okay. So…

M.B. Chinappa — Chief Financial Officer

I just add a numbers, Kiran. You’re talking EBITDA in the $20 million and PAT in the $10 million range that’s on a quarter basis.

Surya Patra — Phillip Capital — Analyst

No, for FY ’22 as a whole sir I think that was a loss making setup.

M.B. Chinappa — Chief Financial Officer

Yeah. On a full-year basis, as we indicated, we have been incurring losses in Malaysia, but Q4 reflects the turnaround and that would give be the total basis to look ahead. There’s no point of going back.

Surya Patra — Phillip Capital — Analyst

Okay. Just one more clarification I wanted about the loss from the associates and JVs. See I believe what we have reported this quarter is something like more than INR50 crore losses and this was expected to be the last quarter of such charges. So some clarity on that. And also whether it is only related to the Bicara related charges or it is something relating to even the UAE subsidiary or UAE JV which now we have activated. Can you just clarify on this, and whether we would build more charges, similar charges even in FY ’23.

Shreehas P. Tambe — Deputy Chief Executive Officer

Siddharth, maybe you want to take it.

Siddharth Mittal — Chief Executive Officer and Managing Director

So, Surya, it does have a component of our joint venture in UAE small though. We have not reactivated that joint venture. Let me clarify that we are going direct in the market for our own drugs, but we still have certain products in that joint venture. And unfortunately because of legal issues going on with our joint venture partner, we cannot wind down this entity. So, we are going to sunset that business in the next year. But of course that business is profitable. So there is a profit aspect of that joint venture in the number. But the number, primarily as I said, is from Bicara. You’re right, the expectation was that whatever we had at the end of quarter three would exhaust by quarter four. But we also had given a debt to Bicara in the previous quarters and in line with fund raise that Bicara is doing we have taken a decision to convert that debt into equity.

Of course, we have not pumped in additional cash into the business, and hence the loss pickup was higher this quarter. We have additional actually the carrying value of $10 million as of end of March, which will come as a loss pick up in the next fiscal. So there is a step up gain that happens as the fund raise, as Bicara continues to do fund raise, there is a step up gain on the existing investment that happens as per the accounting standards and that kind of adds to the, I mean, it gets offset against additional expenses that come in the next quarter. But it could be a mismatch between when the step up gain happens and when the expense against that gets offset.

Surya Patra — Phillip Capital — Analyst

So I think this $10 million will be evenly distributed across the four quarter next year or.

Siddharth Mittal — Chief Executive Officer and Managing Director

No, no, it would be first come first serve basis. I mean, in the sense if $10 million — of course the run rate or the burn rate for Bicara is going to be lower, it’s going to be approximately $5 million to $6 million and looking at our equity of 50% to 60% we will a loss pickup of roughly $3 million to $4 million and that will exhaust as soon as the $10 million get exhausted.

Surya Patra — Phillip Capital — Analyst

Okay, yeah. That is it, sir. Thank you.

Nikunj Mall — Head, Investor Relations

Thanks, Surya. The next question is from Tarang Agarwal from Old Bridge Capital.

Tarang Agarwal — Old Bridge Capital — Analyst

Hello, good morning. Two questions from my side. One, just to get a better sense on the biosims business, while building a product and deploying R&D dollars there, what’s the ballpark EBITDA margin that you’re baking post amortization of all the R&D spends, because I asked this because when I look at the core EBITDA margin today INR1,000 crores of revenue, 39%, it really doesn’t accommodate further R&D spends that might have been incurred on the project — on the products, historically. So just to get some sense that if on the INR1,000 crores that the business is running earning today, what would really be the margin on the business. I’m not sure if I was very clear on what I’m trying to understand but.

Kiran Mazumdar Shaw — Executive Chairperson

I think we have indicated that this is net of R&D, of course. When you talk about core EBITDA margins it excludes R&D. And I think we’ve also indicated that the R&D spends you should factor roughly about 10% to 12% of revenue. So, if you were to look at it that way and of course it gets lumpy, so some quarters it might even get to 15%, but I think you need to factor that R&D spend and then calculate the EBITDA margins based on that. So if you were to look at that, then you’re down to — you can be in that 26%, 27% EBITDA range. But as you know, without investing in R&D there is no future growth.

Tarang Agarwal — Old Bridge Capital — Analyst

Yes, ma’am. Ma’am, so basically what I wanted to understand was that today with Peg, Trastu, insulin and host of other biosims that are currently in the portfolio and generating INR1,000 crores of revenue on a quarterly basis, would it be fair to presume that these products would be generating maybe 25% to 26% EBITDA margin assuming that the R&D spends that were incurred to bring these products online would be amortized over the revenue generating life of these products. I’m not talking from an accounting standpoint, I’m purely talking from a cash flow standpoint if…

Kiran Mazumdar Shaw — Executive Chairperson

Sure, sure, I understand what you mean. Maybe Chin you want to take it.

M.B. Chinappa — Chief Financial Officer

I’ll clarify and then Arun if you could just give a color on overall R&D. But just specifically on the numbers, Tarang, the core EBITDA margins before R&D really reflects what we’re earning on the past investments that we’ve made and products that we’ve brought to the market. So today our sales of Trastu, Peg, now insulin Glargine is reflected in our revenues and core EBITDA margins indicate what we are earning from this business.

Kiran Mazumdar Shaw — Executive Chairperson

I hope that helps, Tarang. Because I think what he is seeing is that, once you make those investments, obviously, your margins are much higher. So, I hope that.

Tarang Agarwal — Old Bridge Capital — Analyst

Ma’am I’ll — not really, but I’ll probably take it offline. I think I’ll be — so can I, if you may, I’ll just probably take two more minutes. So hypothetically if say INR1,000 crores or INR2,000 crores were spent on R&D for these three products, okay, over the life. I mean, historically over the last six to eight years, okay. And assuming that entire amount was sort of capitalized, assuming, I’m not saying it has, assuming that it was capitalized and now once these products start generating revenues, right, and I start writing off those INR1,500 crores whatever I spent on R&D is over the lifetime of the products with probably fetch me what I’m really earning out of those products today. So that is the figure that I’m looking at. I’m not saying, I don’t want you to give us the figure for the current INR1,000 crore pipeline, INR1,000 crore revenue I’m saying what is that you all sort of forecast when you’re building.

Kiran Mazumdar Shaw — Executive Chairperson

So, Tarang, let me answer that question by saying that, look Chin just mentioned that the — let’s look at today’s numbers in biosimilars, it’s actually pertaining to the products that you have — that are in the market, right. And that’s the — and it does not reflect the current R&D spends on those numbers. It actually basically takes into account all the R&D that has gone into shaping these molecules, right. And basically if you look at the way we capitalized all the R&D spends and if you look at your core EBITDA numbers, it includes the amortization that you will be — on these spends at the current levels. So what you’re now saying is that the only thing that you are now having to factor is the additional R&D spends.

Tarang Agarwal — Old Bridge Capital — Analyst

For the future pipeline.

M.B. Chinappa — Chief Financial Officer

Kiran, if I may, Tarang, I’ll just clarify one more time. Basically when we say core EBITDA, core EBITDA excludes R&D spends on both, on new programs or old programs. Most of the old programs were either expensed out…

Kiran Mazumdar Shaw — Executive Chairperson

Or capitalized.

M.B. Chinappa — Chief Financial Officer

And some portion is capitalized and those capitalized are being amortized below the line, below core EBITDA. So when you look at core EBITDA that’s really give you the true picture of revenues and profit — I mean profits on past investments.

Tarang Agarwal — Old Bridge Capital — Analyst

Okay, thank you. Just a second question from me. The INR3,400 crores of CWIP on the balance sheet, what would be a major portion of that and what would trigger the capitalization of it and further impact of that on the P&L, annual impact of that on P&L cost impact.

M.B. Chinappa — Chief Financial Officer

Shreehas, you want to talk to the expansion.

Shreehas P. Tambe — Deputy Chief Executive Officer

Go ahead, go ahead.

M.B. Chinappa — Chief Financial Officer

Tarang, yes, the CWIP largely represents expansion of our drug substance capacities for mabs. We expect one of these facilities to come online in this fiscal that FY ’23 and the other second facility to come online in FY ’24, ’25 timeframe. As they come online, they will of course give us digital opportunities, particularly as Bevacizumab gets a tool, we will have additional capacities to service that. But on the flip side, you will have increased depreciation interest and other costs associated with the facility.

Nikunj Mall — Head, Investor Relations

Thanks, Tarang. The next question is from Vipulkumar Shah, who is an individual investor.

Unidentified Participant — — Analyst

Hi and congratulations on good set of numbers. I have two questions. What was the exit capacity utilization on Malaysian plant? And second, what is your guidance for full-year losses for novel biologics? Thank you.

Siddharth Mittal — Chief Executive Officer and Managing Director

Let me take the first one Vipul which I think if I heard you correctly, your question was, what is the capacity utilization that we see in Malaysia. That was your question. I see, I think the important thing is to see that the capacity utilization with the second half of the year in Malaysia has significantly improved over the first half of the year and it’s reflected in the supplies and the revenues that we bought during the second half of the year. We also guided that we are making investments and expanding capacity further as we see, not just increase interest in the products that we brought to the market, but also for products to follow. So, we will see capacity expansion further in Malaysia for that product and that substance in the years to come. But clearly capacity utilization of our current investments has grown significantly leading to that Malaysia facility turning profit towards the end of the year as we close and exit the fiscal ’22.

I think your question was more related to novels. I couldn’t hear that well. If you could repeat that please.

Unidentified Participant — — Analyst

What is your guidance annually for novel biologics for FY ’22, ’23. And regarding Malaysia my question was, what was the exit capacity utilization for the fourth quarter. Thank you.

Siddharth Mittal — Chief Executive Officer and Managing Director

Vipul, let me take the guidance on novels and I would talk more qualitatively rather than numbers. I think I’ve already indicated that we have very small spend on Itolizumab, the Tregopil trial is also complete. So, there we do not expect any additional cost coming in for Tregopil. The BCA101 or the Bicara trial which is ongoing again the cost is not coming in the R&D expense. It’s coming through the cost of JV. But more directionally as Kiran had mentioned in her opening remarks that Equillium has started a Phase 3 trial for acute GVHD and it’s a global trial. So we expect significant progress to be made over the next two years from a clinical perspective for Itolizumab. We are also going to start maybe another trial for an indication in India in this fiscal year. And we have the BCA101 or Bicara clinical trial going on in the U.S. Again, we expect data to come out in FY ’23 and ’24. So those are the two lead molecules that we have — where we do expect progress over the next few years.

Operator

Thanks, Vipul. The next question is from Prakash Agarwal from Axis.

Prakash Agarwal — Axis Capital — Analyst

Yeah, thanks for the follow-up. Quick one here. On the gross margin side, we have seen some drop partly I think due to Syngene research services and partly maybe higher input costs. So, how do we see fiscal ’23 given that most of the other products launches now calendar ’23. So how do we see fiscal ’23 for the gross margins.

Siddharth Mittal — Chief Executive Officer and Managing Director

I think maybe the breakup can be is — let me just break it up. Generics has down 2% on a full year basis, biosimilars is down 2% and research is down 5%. Of course, generics is down mainly because of increase in input costs and the solvent prices. I don’t see at least in the generics business recovery in gross margins next year. We do expect to continue at similar levels as the full of — full fiscal of ’22. Chini, can answer, but again, there are, as you know, many moving parts for BBL because of Serum and Viatris. Chini can hazard a guess.

Prakash Agarwal — Axis Capital — Analyst

His broad color should help.

M.B. Chinappa — Chief Financial Officer

The base business as we see an increased revenues and profit share coming from the U.S. markets, our overall gross margin should be maintained. But I take it that when you say gross margin you’re saying revenues less material costs.

Prakash Agarwal — Axis Capital — Analyst

Yes, sir.

M.B. Chinappa — Chief Financial Officer

Not the core EBITDA margin. Yes. Gross margins, we should be able to manage within a 1%, 2% range.

Prakash Agarwal — Axis Capital — Analyst

Okay, sir. Thank you. And second one is on the Biocon Biologics I new online. So, in the past we have said 12 to 18 months, is it still look in that ways or given that so much development Viatris and Serum et cetera has happened so.

Kiran Mazumdar Shaw — Executive Chairperson

Yeah. Obviously, it is going to be paying to the date of closure and the way we can basically integrate the business. So obviously we will look at that and then decide the time.

Prakash Agarwal — Axis Capital — Analyst

Right, perfect. And all the best for that. Thank you.

Nikunj Mall — Head, Investor Relations

Thanks, Prakash. Kiran, we are running out of time. I think we’ll take one more question for the day. The next question is from Nithya from Bernstein.

Nithya Balasubramanian — Sanford Bernstein — Analyst

Yes, thank you. Sir two quick ones. So, on Stelara or Ustekinumab there are two two product presentations the IV1 and the injection 1, are you chasing both? And the second one is what color can you give us on the Sandoz programs.

Shreehas P. Tambe — Deputy Chief Executive Officer

Yeah, Nithya on the Ustekinumab the response to that first question is, yes, we’re chasing both. The question that you had on pipeline, I think we are looking at products which would basically have market formations towards the end of the decade and that’s something that we’ve been working on. And as these products progress towards that we will be making more information out.

Nithya Balasubramanian — Sanford Bernstein — Analyst

As of now everything is preclinical, is that how we should read it?

Shreehas P. Tambe — Deputy Chief Executive Officer

Yeah. Right now it will be preclinical stages.

Nithya Balasubramanian — Sanford Bernstein — Analyst

Thank you so much.

Nikunj Mall — Head, Investor Relations

Thank you. We have one more question from Dinesh Mahajan. Dinesh, please go ahead.

Unidentified Participant — — Analyst

Am I audible.

Shreehas P. Tambe — Deputy Chief Executive Officer

Yeah.

Unidentified Participant — — Analyst

Yeah. Thanks and congratulations for good set of numbers. I being a practicing doctor like India being the diabetes capital of the world. And right now the management seems to be more focused about the U.S. market. Any specific strategies we have to grow the Indian market share when it comes Semglee or Insugen or your diabetes portfolio you have for the Indian market. Like I see MMC is dominating in India, does Biocon has any special strategy in place or are they focusing on growing market share in India?

Shreehas P. Tambe — Deputy Chief Executive Officer

Susheel, maybe you want to answer this.

Susheel Umesh — Chief Commercial Officer

Thank you, Dr. Dinesh for that question. The India business to us is very, very important. It’s a home country for us and it’s important that we drive market share in India and we are very, very conscious about that. In terms of base on the interchangeability study or science that we are selling had a very strong impact on the doctors in India. So, the focus is very high in terms of field force. We have ramped up of field force as well. We know the needs of education, the needs of training with our field force will only go up, and that’s where we are focusing. A lot of focus being done in India on sales force excellence and also high scientific activities with doctors in the country as well. So we are driving very strongly for that and in FY ’22 we have seen results come in as well indicating towards increased market share. So, the focus will be there very strongly on India, not only for diabetes, but also for oncology and the other portfolio that we have.

Unidentified Participant — — Analyst

Okay, thank you. And one more if I may. Madam, like Biocon Biologicals will be listed as a separate entity. So anything what the old your previous Biocon shareholders should look at, any share listing for them or any other opportunity for them.

Kiran Mazumdar Shaw — Executive Chairperson

At this point in time, I really won’t be able to say much, but we are quite a while away from the IPOs.

Unidentified Participant — — Analyst

Okay. Thank you, madam. Thank you.

Nikunj Mall — Head, Investor Relations

Thank you, Dinesh. Thank you, everyone. That was the last question for today. We thank you all again for joining us today. If you have any additional questions, please feel free to reach out to Aishwarya or me. We look forward to seeing you again next quarter. Have a good day.

Kiran Mazumdar Shaw — Executive Chairperson

Thank you.