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Updated:22 Jul, 2019, 15:59 PM IST

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Updated:22 Jul, 2019, 16:01 PM IST

Chairman's Speech

Dear Shareholders,

Affordability is at the epicenter of the global healthcare debate and it is clear that drug innovation and therapy cost must interact effectively in a new financial matrix. Biocon's business strategy of delivering affordable innovation is well aligned with this emerging paradigm.

During the year, Biocon continued to tread the path towards its mission of lever­aging India's cost effective innovation base to deliver affordable drugs for chronic diseases in global markets, through strategic research and marketing partnerships.

Over the past decade, Biocon's biopharmaceutical business has evolved to a size and scale that is poised to address global opportunities. We have also shaped our business into five clear growth verticals with specialized and dedicated resources that can help us attain focus and deliver value. These business segments have been derived from our core technology platforms that have differentiated us in the marketplace.

They are:

1. Small Molecules

2. Biosimilars

3. Branded Formulations

4. Novel Molecules

5. Integrated Research Services

Moving ahead, we are investing in augmenting our manufacturing, research and marketing base in order to pursue strong and sustained growth. This includes our first overseas manufacturing facility in Malaysia, our new state–of–the–art research center in Bangalore and a number of marketing alliances in several emerging markets.

The year under review also saw the dissolution of our global partnership for Biosimilar Insulin and Insulin Analogs with pharma major, Pfizer. A change in priority within Pfizer's biosimilars division led to a preference for in house biosimilar programs that were perceived to deliver higher returns. This led the two companies to reach an agreement for amicable parting of ways which was believed to be in best mutual interest. In terms of business continuity, there will be minimal impact as Biocon will continue to develop its programs for global registrations as per plan, utilizing the retained payments received from Pfizer. We remain committed to our commercialization endeavor, albeit on a different path that will shift from a single global partner to multiple regional alliances.

Biosimilar Insulin and Insulin Analogs occupy a large segment of biosimilars, globally. Our Biosimilar Recombinant Human Insulin is already well accepted in several emerging markets, where we have strong alliances that pre–date our partnership with Pfizer. We are confident that we can carve out a sizeable and profitable share of the US$ 17 billion global insulins market in the years ahead. We expect to extend our relationships with existing regional partners and forge new alliances in other markets.

The Five Growth Verticals Small Molecules

Biocon has been reaping rich rewards from its Small Molecules business which comprises a robust portfolio of Active Pharmaceutical Ingredients (APIs), including generics like Statins, Immunosuppressants and Proprietary Products like Fidaxomicin. Recognizing the vulnerability of APIs to commoditization, we are entering the next phase of growth by developing and marketing finished formulations. We aim to move up the value chain, through 505 (b)(2) and ANDA filings.

Biosimilars

The Biosimilars opportunity is set to expand as patents expire on leading biologics and patients demand lower priced drugs. A number of top selling biologic brands, including Herceptin, Enbrel, MabThera, Remicade as well as Insulin Analogs like Lantus, Humalog and NovoLog are due to lose product patent protection over the next 5–7 years, opening up a wealth of new possibilities for biosimilars players. Key therapy areas such as cancer, diabetes and rheumatoid arthritis will spearhead this new wave of biosimilars.

Biocon is well placed to leverage many of these opportunities. Our Insulins portfolio will enable us to strike a sizeable share of the biosimilar insulins market, which is expected to reach US$ 20 billion by 2020. Our Biosimilar Monoclonal Antibodies programs focusing on oncology, rheumatoid arthritis and other areas, will give us additional foothold in these chronic segments.

We have already begun unlocking value in emerging markets with our Biosimilar Recombinant Human Insulin where we are represented in over 30 countries through various regional marketing alliances. With the growing incidence of diabetes the world over, this will potentially expand the global market even further. Biocon is well positioned to address this large opportunity with the advantage of being 'affordable'.

Branded Formulations

Branded Formulations have helped energize the Company not only in terms of earnings but also in creating brand equity. This is an India centric business and several Biocon brands are amongst the top five in the domestic market. The Indian pharmaceuticals space is set for exciting times with the market expected to attain a size of over US$ 50 billion by 2015.

In less than a decade, Biocon has made a strong entry into the Indian market with over 70 brands across six disease segments: Diabetology, Oncotherapeutics, Nephrology, Cardiology, Immunotherapy, and Comprehensive Care. We are comm­itted to building market and brand leadership through product differentiation and personalized medical support.

I am pleased to state that Biocon is now India's premier Insulins Company, regis­tering the fastest pace of growth in the insulins sector. Whilst we have seen robust growth in the vials segment thus far, the recent introduction of an innovative device INSUPen has now spurred growth in cartridges as well. INSUPen has been positioned to augment patient compliance and convenience. Our six months sales numbers reflect good acceptance of this new product offering.

In Oncology, our proprietary anchor product BIOMAb EGFR which has the distinc­tion of being the first novel biologic to be developed in India, has revolutionized the treatment of head and neck cancer. Recently concluded clinical trials will now enable label extensions to new indications such as glioblastoma and non small cell lung cancer. Over 5,000 Indian patients have benefited from this life saving drug. FY 12 saw the completion of one year of market introduction of the first and only global generic version of everolimus from Biocon. Branded Evertor, this life saving cancer drug used in the treatment of neuro–endocrine tumors of pancreatic origin, has benefited over 400 patients. Biocon has also provided affordable access to this drug which was previously beyond the reach of most Indian patients.

Biocon's Nephrology division continues to forge ahead with its well balanced portfolio of products for dialysis and transplant patients, with most brands featuring amongst the top three. The dialysis market is experiencing unprece­dented growth through the establishment of branded chains of dialysis centers across the country. This is expected to expand the market for our leading erythropoietin brand, ERYPRO.

Novel Molecules

Bringing path breaking proprietary products to global markets is Biocon's long cherished objective. As drug development becomes an expensive, high risk endeavor, we are leveraging our robust R&D engine to deliver affordable innova­tion. Biocon's global competitive edge rests on its high quality talent, process innovation, and high value licensable research assets. We will take our most promising novel molecules to proof–of–concept before exploring partnerships. Biocon's two late stage candidates include an Oral Insulin molecule (IN–105) and Itolizumab (T1 h) – an anti–CD6 MAb for autoimmune conditions which has completed a phase III psoriasis trial with compelling data that profiles it as an attractive licensable asset. Closely following these programs into the clinic are BVX–20, an anti–CD 20 "bio–better" monoclonal antibody that has shown encouraging results so far; and our partnered program with Amylin Pharmaceu­ticals for AC165198, a Phybrid which has dual pharmacology addressing diabetes and obesity, currently in phase I clinical trials under a US FDA IND.

Integrated Research Services

FY 12 has been one of the strongest years in Syngene's history. The strategy to invest in strengthening our scientific team and capability platforms in discovery and development has allowed us to build stronger, more integrated and value creating collaborations to support our customers. The solid progress we have seen this year by employing this strategy is also reflected by the encouragingly high levels of customer retention and expansion, in terms of both scale and scope of activity.

Additionally, this has also provided us the ability to attract new customers. Supporting this growth, our team of scientists has grown from 1,300 to over 1,600 and is now the largest team of scientists in life sciences in India. Along with expansion in our customer base, we are also seeing an accelerating evolution in the nature of our customer collaborations through high value addition. It has been an encouraging year of consolidation and investment in our underlying service capabilities which enables Syngene to continue its growth trajectory, going forward.

A recent highlight is the establishment of The Abbott Nutrition R&D Center at Syngene, a clear endorsement of the success of our Integrated Services model. We expect to enroll other dedicated research hubs in the future.

Preparing ourselves for the Syngene IPO, we have taken the first step of making Clinigene a subsidiary of Syngene. We plan to move further based on appropriate market conditions as advised by our consultants.

Focus on Innovation

Our innovation strategy is based on collaborative R&D aimed at maximizing out­comes through shared risk and reward, whilst delivering affordable innovation. Biocon's R&D effort has created a robust pipeline of Small Molecules, Biosimilars and Novel Biologics which promise sustained high value growth.

Taking this forward, we recently inaugurated Biocon Research Center, a state–of–the–art integrated Biotechnology R&D Center which has a mandate to be the 'center of excellence' with a multi–disciplinary ecosystem for conducting research. Spread over 2,00,000 sq. ft., this research facility encompasses labs for molecular biology, biologics process science, formulations development, molecular characteri­zation, functional bioassays, and preclinical and clinical development.

Corporate Social Responsibility

Through Biocon Foundation, we aim to make a difference to the life of the communities we serve. Our integrated healthcare initiative spans preventive, primary, secondary and tertiary healthcare programs. In the area of education, our focus is on the quality of primary education delivery.

During the year, our nine Arogya Raksha Primary Care Clinics, meted out medical consultations to over 60,000 patients. We plan to open six more clinics this year and start several new healthcare initiatives. Our key activities last year included an oral cancer screening program and a series of training programs for health workers in chronic disease management.

Under our Micro Health Insurance Scheme, Arogya Raksha Yojana, we enrolled nearly 1,00,000 people in Karnataka. In the area of education, our Math Work Books "Chinnara Ganitha" have greatly enhanced the mathematical skills of students in rural schools. We now print 80,000 books which are distributed in primary schools in eight districts of Karnataka.

I am also pleased to inform you that our rehabilitation efforts extended to flood victims of Bagalkot district in Karnataka, has seen us build over 400 houses which will be supported by a health–cum–community center and a primary school in the village. Going forward, we plan to provide solar lighting to every household as a part of our endeavor to offer a sustainable solution for electrification.

Financial Performance

FY 12 has been an eventful year with good progress across our businesses. At Group level, we have delivered 16% Revenue growth driven primarily by Research Services and Branded Formulations. Our Research Services business showed a robust 29% revenue growth from Rs. 3,177 million to Rs. 4,101 million this year, and our Branded Formulations business grew by 39% from Rs. 1,863 million to Rs. 2,594 million in FY 12. Overall, our EBITDA and PAT margins have been delivered at 27% and 16% respectively. Our Net Cash position further improved to Rs. 7,327 million, against Rs. 4,908 million at the end of last fiscal.

The benefit of licensing income to our PAT was sharply down to Rs. 390 million this fiscal from the exceptional levels recorded last fiscal of Rs. 990 million. However, improvements elsewhere maintained total PAT at near last year's level. Going for­ward, our development expenses for Insulins program will be set off against the retained payments we have received from Pfizer.

We have seen exceptional growth in our Research Services business, an outcome of the strategic investments we have made over the last two years in enhancing our integrated service offerings.

Obituary

It is with great sadness that I share with you the news of the demise of Dr. Neville Bain, Non–Executive Director and Chairman of the Audit Committee, on May 22, 2012. Dr. Neville Bain joined the Board of Biocon in 1999 and played a key role in building high standards of Corporate Governance and Financial Reporting for Your Company. His contribution and commitment to Biocon will be cherished for years to come. On behalf of my Board and all my colleagues at Biocon, we express our deepest condolences to his wife and family.

Looking Ahead

Over the past year, Biocon has built on its core strengths and leveraged its growth drivers to ensure a profitable future for Your Company. As we move forward, we will out license our assets to unlock value. We will leverage our Research Services with differentiated offerings. Our focus on emerging markets through regional partnerships, we believe, will help us further stimulate this growth momentum. We will continue to enhance our brand equity in domestic markets and in select emerging markets.

Finally, I would like to thank Team Biocon for its dedication, support and tireless efforts in building Biocon. I also thank all our esteemed shareholders for their continued support and for partnering us in our mission to make a positive impact on global health.

Thank you.

Yours sincerely,

Kiran Mazumdar–Shaw

Chairman & Managing Director

June 5, 2012

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