Have to keep R&D spends at 12% of revenue: Biocon's Kiran Mazumdar-Shaw

It's a high growth phase for us in Biocon Biologics: We crossed the Rs 1,500-crore mark in revenue for the first time this quarter. We will exit this year (FY23) at Rs 2,000-crore level

Bengualru-based biotech firm Biocon has posted 35 per cent growth in Ebitda and 36 per cent growth in revenue in the Q3FY23. Its R&D spends went up 144 per cent to Rs 337 crore. In an interview with Sohini Das after the quarterly results, Kiran Mazumdar-Shaw, executive chairperson, Biocon and Biocon Biologics, discusses growth plans for Viatris’ business, and why she wishes to keep R&D spends at 12 per cent of the top-line. Edited excerpts.

What’s your geographical expansion plan for the Viatris portfolio?

Viatris’ acquisition is a huge inflection point for our business, and this is going to be a transformational acquisition for Biocon. We would be among only a few fully integrated biosimilars companies globally. We are looking at the 80-20 rule -- or which are the most important countries from where the business is coming from. The most important market for us is North America or the US, and then Europe is a very important market. We are targeting key clusters in Europe like France cluster, German cluster, Spain-Italy cluster, and the UK-Nordic cluster. There are complex regulatory requirements in each geography in Europe. We are beginning to see increasing market share in Europe and the US. Apart from this, Brazil and North Africa are important markets for us, along with Asia-Pacific.

It’s a high growth phase for us in Biocon Biologics: We crossed the Rs 1,500-crore mark in revenue for the first time this quarter. We will exit this year at Rs 2,000-crore level for Biocon Biologics (for Q4), and be on a billion-dollar trajectory.

How much revenue contribution do you expect from the Viatris portfolio in FY24?

We expect to grow significantly in the coming year. We had indicated that we would deliver on the Viatris-based business of around $1.5 billion sales. If we look at just the merged Viatris business, we are already at a baseline of $1 billion, and the forecast was $1.5 billion by the end of FY24. There are some challenges in that forecast which was made before the Russia-Ukraine war. Cost of capital was much lower than what it is now. The euro-dollar parity has been impacted. A large part of our business comes from the Euro zone. We are trying to get as close to $1.5 billion as soon as possible.

You entered eight new emerging markets (EMs) this quarter. What role will EMs play?

Around 75 per cent of the overall business comes from the US and the European region for the Viatris portfolio, and the remaining from EMs. If we add Biocon’s business and the India business to that, it's about a 70-30 split where 30 per cent comes from the rest of the world markets, including India. Latin America and North Africa are attractive markets.

R&D spends have grown by 144% this quarter. What is the R&D spending forecast?

This quarter we have seen a huge jump in R&D spends -- it's around 16 per cent of consolidated revenue, and 19 per cent of Biocon Biologics’ revenue. That’s not a ratio we are comfortable with. We are more comfortable with 12 per cent of revenue. For a Rs 1500-crore top-line this quarter, it’s around 19 per cent of revenue, but if we touch a Rs 2,000-crore top-line next quarter, it reduces to around 14 per cent. So, we would like to get it more towards the 12-per cent mark. Therefore, as revenue grows, one can afford to spend more and more on R&D, because R&D is our lifeline. By stopping R&D, we are stopping future growth. But we have to calibrate our R&D spends, and keep that at a 12 per cent level. By doing so, we can be very competitive in the market place and our profitability will also improve.

What’s the capex lined up for 2023-24?

Most big-ticket capex has already been made. That’s a great thing for us. If one relies on contract manufacturers, one is not competitive. We have become very competitive. Most investments have been done in the past 10 years. We are now putting in a second phase of expansion in Malaysia, worth around $250 million. A large part of it has been spent this year, and only a small part is left for next year. Biocon has also made investments at Visakhapatnam and Bengaluru. Now, we will be spending Rs 300-500 crore a year for any other capital allocation in our businesses.