Good morning, everyone. I'm Saurabh Paliwal from Biocon Investor Relations team, and I'd like to welcome.
For the third quarter of 2024. I would like to indicate that all participants will be in the listen-only mode, and there will be an opportunity to ask questions after the opening remarks conclude. If you need to raise questions, ask questions, please select the raise hand option under the Zoom applications reaction tab. We will call out your name and unmute your line to enable you to ask the question. When asking a question, please limit your questions to two, and please state your name and organization before asking the question. I'd also like to bring to your attention that this conference call is being recorded. The recording will be available on our website within the day, and the transcript will be available subsequently.
To discuss this quarter's business performance and future outlook for the company, we have on this call today our group CEO, Mr. Peter Bains, Mr. Siddharth Mittal, CEO and Managing Director of Biocon Limited, Mr. Shreehas Tambe, CEO and Managing Director of Biocon Biologics, along with other senior management colleagues across our business segments. Before we begin, I want to remind everyone about the safe harbor related to today's call. Comments made during the call may be forward-looking in nature, based on management's current beliefs and expectations.
They must be viewed in relation to 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 reach out to the investor relations team. With this, I would like to hand over the call to Mr. Peter Bains for his opening remarks. Over to you, Peter.
Thank you, Saurabh. Good morning, everybody, and thank you for joining this call. I'll start with a broad overview of the consolidated group financial results before discussing each of the business units in more detail. Total group revenue for the quarter was INR 4,519 crore, up 50% year-over-year. This growth was supported by income from divestiture of two non-core branded formulation India business units in Biocon Biologics for INR 350 crore and a gain from Biocon stake dilution in Bicara Therapeutics for INR 456 crore. Revenue from operations increased by 34% to INR 3,954 crore, with biosimilars revenue growing 65%, research services growing by 9%, and generics declining by 7% year-over-year. Core EBITDA for the quarter stood at INR 983 crore, reflecting a group core operating margin of 27%.
It's important to note here that core EBITDA excludes the impact of asset and stake sales, as I just described, and, of course, R&D. R&D spend stood at INR 329 crore, corresponding to 11% of revenues excluding Syngene. Group EBITDA for the quarter was up 106% at INR 1,492 crore versus INR 723 crore last year, with an EBITDA margin of 33%. Excluding the two non-recurring items, group EBITDA for the third quarter stands at INR 686 crore, with a margin of 18% as compared to 24% last year.
Depreciation, amortization, and interest increased by INR 260 crore year-over-year to INR 681 crore, primarily associated with biosimilars business acquisition costs. Consequently, profit before tax and exceptional items stands at INR 787 crore, up 220% from INR 256 crore last year. Reported net profit for the quarter before exceptional items stands at INR 644 crore as compared to INR 140 crore in the previous year.
I want to note here that we recorded a net exceptional gain during the quarter of INR 16 crore. This is net of tax and minority interest. This exceptional gain comprised of a gain on carrying value of an existing contractual receivable arrangement, which was offset by impairment of intangibles associated with a product in certain territories and some inventory revision, and transaction costs related to the Viatris transaction and Stelis facility acquisition. This gain contrasts with a loss of INR 182 crore last year, and consequently, reported net profit after exceptional items now stands at INR 660 crore as compared to a loss of INR 42 crore last year. And finally, as part of our efforts to reduce debt, we have repaid $200 million of biosimilars acquisition-related debt. Let me now turn to the business segment and start with generics.
The generics business reported an operating revenue of INR 703 crore, delivering sequential growth of 4% while declining 7% year on year. The business performance for the segment reflects a generic formulations component, which is showing consistent and steady growth, and the API business, which is affected by market dynamics of pricing pressure and variable uptake, resulting in a lumpiness in performance. Core EBITDA for the quarter was INR 154 crore, with a margin of 22%. Profit before tax stood at INR 50 crore, representing a PBT margin of 7%. Moving to the generics business updates, let me start with product approvals, and here I'm pleased to report that we've received our first generic product approval in China for mycophenolate sodium. This approval paves the way for the entry of our products into this large and strategic market.
In addition to this, we have also received four product approvals across API and formulations, including one approval in the United States, one in the U.K., and two in most of the world markets. Moving on to an update of our manufacturing programs, I'm pleased to report we've made good progress in our investment in new platform capabilities and capacities to underpin future growth. During the quarter, the company's Greenfield Immunosuppressants facility in Vizag received a certificate of suitability, or CET, from EDQM, the European regulator. We now expect the facility to be inspected and subsequently qualified for commercial supplies by other major regulators in the next fiscal. These new approvals, as they are received, will help build upon the established scientific and commercial capabilities of Biocon in fermentation products and help address the growing demand for immunosuppressants across global markets.
Also, during the quarter, our peptides API facility in Bangalore successfully completed process validation activities. As the business model of Biocon generics evolves in the coming years, we expect peptides, and particularly GLPs, to play a major role as a future growth driver. In Hyderabad, process validation of products has begun in our new and modernized synthetic API facility. As we approach the close of the current fiscal, the business performance will remain a balance of API business lumpiness underpinned by sustained performance in generic formulations supported by recent contract wins and upcoming product launches. Let me now move on to Biocon Biologics, and let me start by providing an update on the integration of the acquired business in Viatris. During the quarter, we completed the operational integration in more than 30 European countries, Japan, Australia, and remaining emerging markets.
With this, we have now successfully completed the full transition of the acquired business in about 120 countries, fully 1 year ahead of schedule to become a globally scaled and vertically integrated lab-to-market biosimilar enterprise. Turning now to the business performance and starting with the United States. In the first quarter post-integration, our products have maintained momentum and shown resilience in the dynamic market environment. Fulphila, our biosimilar Pegfilgrastim, demonstrated continued strength with 80% market share in November, while Ogivri, our biosimilar Trastuzumab, has been resilient with a market share of 12%. Reported market share for our biosimilar Glargine continues at 12%. However, these numbers do not capture the uptake of our unbranded Glargine through a closed-door pharmacy network. New wins during the quarter included 3 contracts for Fulphila, including a sole-source contract with a large GPO organization, and three contracts for Ogivri, including a large GPO arrangement.
We also secured two contracts for unbranded biosimilar Adalimumab commencing this month. Turning to Europe, and here our products have made steady gains. The quarterly market share of Fulphila has grown to 8% against 5% last year, and Abevmy, our biosimilar Bevacizumab, has grown to 6% against 1% last year. In emerging markets, the highlight was the launch of Abevmy in Brazil with an originator market opportunity of $175 million. This was a landmark launch, being the first major launch post-completion of the integration of the acquired business. Now coming to the financials of Biologics, the revenue from operations was INR 2,483 crore, up 65% year-over-year. On a sequential basis, the growth stood at 26%. As mentioned last quarter, we divested two non-core branded formulations India business units to Eris Lifes ciences, aligning with our global product focus.
This has led to an increase in operating income for the quarter by INR 350 crore. Excluding revenues from the divestiture, the sequential growth stands at 8%. This translates into a core EBITDA of INR 587 crore, with a margin of 28%. This margin is lower than our guidance of mid-30s on account of a series of integration-related expenses and one-off costs. Adjusting for these, core EBITDA margins would be 5% higher. EBITDA margins for the quarter were 29%, with R&D investments at 11% of revenues. Profit before tax stands at INR 196 crore. Debt reduction and strengthening of the balance sheet remains a continued focus for the company, and we are pleased to report that during the quarter, we received $220 million from an existing contractual receivable arrangement, $200 million of which we used to reduce our acquisition-related debt.
With this paydown, net debt at Biocon Biologics, excluding structured financing instruments, reduced to $1.2 billion, and overall, at the Biocon group level, net debt now stands at $1.1 billion. Moving on to biologics regulatory updates. Following the receipt of marketing authorization for Yesafili, our biosimilar Aflibercept, in the European Union, we have also received marketing authorization from the U.K.'s MHRA in November. In the United States, we have been in litigation with the originator for our biosimilar Aflibercept, where the court issued a mixed decision in December 2023, and as a next step, we will now appeal the West Virginia court's decision on the '865 formulation patent. On the clinical front, we have initiated our phase III studies for our biosimilar Pertuzumab, advancing and continuing to engage with the FDA on progressions regarding our Malaysia OAI status and biosimilar Aspart BLA.
The next step, we have received a CRL from the USA for Abevmy, as the agency was not able to visit the site for a pre-approval inspection. To reiterate here, the CRL did not identify any outstanding scientific queries on the dossier, and we continue to engage with the agency to facilitate an inspection at the earliest possible opportunity. In summary, this has been an extraordinarily busy quarter for the Biologics business, completing the transition and integration, as well as maintaining robust business continuity. We see strong demand continuing for our products across the markets, and the opening up of the Adalimumab biosimilar market, along with the regulatory approvals for biosimilar Aspart and Bevacizumab to come, would be additional key growth drivers. Debt reduction and strengthening our balance sheet remains a key focus. Let me now move on to an update on our Novel Biologics segment.
Here our Boston-based Bicara Therapeutics successfully closed the $165 million Series C financing in December 2023. With this latest close, Bicara has to date cumulatively raised $355 million from a syndicate of biotechnology investors. As a result of Bicara's fundraise, Biocon recorded a gain of INR 456 crore in the consolidated P&L statement during the quarter, mainly arising from the fair valuation of its holding in line with the Series C financing. Biocon shareholding in Bicara is now reduced to 14%, and as such, Bicara ceases to be an associate company for the Biocon group. Finally, coming to Syngene. In Syngene, revenue from operations for the quarter was up 9% over last year to INR 854 crore, with reported EBITDA up 5% to INR 261 crore, with an EBITDA margin of 30%. Profit before tax was INR 142 crore, up 1% over last year.
Syngene's performance during the third quarter was affected by reduced funding in the U.S. biotech segment, which impacted demand in its Discovery Services division, while Dedicated Centers in Development and Manufacturing divisions performed well. In manufacturing services, Syngene's long-term biologics manufacturing partnership with Zoetis continued to make good progress. During the quarter, Syngene concluded the acquisition of the multimodal biologics manufacturing facility from Stelis Biopharma, and once operational, the acquired facility will add 20,000 liters of biologics drug substance manufacturing capacity to Syngene's existing capacities. The acquired facility also includes a commercial-scale, high-speed fill-finish unit, providing an essential capability to Syngene for drug product manufacturing. The facility is expected to be operational in the second half of FY 2025, subject to regulatory approvals. In summary, the highlight of the quarter has been the completion of the transition and integration of the acquired biosimilar business.
The sustained momentum for its product portfolio across markets augurs well as it focuses on improving market penetration of its commercial products, launching new molecules, and working to reduce debt. The generics business is making progress on expanding its portfolio and geographic reach, as well as strengthening its manufacturing base, both for today and for future growth opportunities. Syngene continues to perform well, driven by Development and Manufacturing services, and the demand environment in the U.S. biotech segment is expected to recover over the next quarters as the funding environment normalizes. And with that, I'd like to conclude my opening remarks and now open the floor to questions.
Thank you, Peter. I'll be ready for the questions in December. As a reminder, please use the reaction tab at the bottom of the Zoom application to ask a question. We'll take the first question from Neha Manpuria from Bank of America.
Please go ahead. Thank you so much, Saurabh. Hi, Peter. Thanks for the opening remarks. A couple of questions. First, I missed your comment on Aflibercept. The line wasn't very clear at my end. If you could just tell us the next steps that Biocon is looking at in terms of Aflibercept, and could this still be an opportunity for us, given our first-to-filing status in the product?
Sure. Hi, Neha. Thank you for the question. Let me ask Shreehas if he'd like to answer that, please.
Yep. Thanks, Peter. Neha, thanks for your question. As you know, at this point, we are evaluating all the options available to us, and certainly, appeal is one of the options that we are looking at. We are confident about the position that we've got, and as we progress this, we will update you on the next steps.
Understood. Thank you so much. My second question is on the BBL business. We have seen traction in terms of revenue quarter-over-quarter. You did seem to indicate a lot of contract wins across products. So is it fair to assume, even though there is still uncertainty on the approval timeline for Aspart and Beva, what should be the traction of the biosimilar revenue? That's number one. And second, when will that start reflecting in terms of margins? Because we have this one-off cost for a while now. When do we start seeing that one-off cost getting sort of annualized and seeing a clean number in BBL going forward?
Shreehas, again, you take that.
Yeah. Thanks, Peter. Neha, I think that's a very fair question. I think what Peter alluded to in his opening comments was we've just come off a very massive global integration, 12 months ahead of schedule.
So clearly, it's been a huge focus right now to integrate and go from being present in two countries to being present in 120 countries or so. So I think that's been really the focus. And as we've done that, we've made sure that business continuity was the top focus, and that's what you've seen us do. Market share for all products across have continued to be stable or to be growing, and that's been very important for us. Now, coming to your question, which was related to how do we see this? I think the new products are awaiting inspection at site. There's been good progress on that. But until then, certainly, we are going to look at growing the business through existing products, and that will come from increased market share. So there is that piece. Until we get new approvals, we will have to work through.
One-offs anywhere, whenever you have this kind of a transition, you do see that, and that is what we are seeing at this point. But business will see changes as you see new products getting approved, and then, like you asked, whether you will see that into a steady state, and then it moves to that steady state, yes.
And when do we expect these new approvals, Shreehas? Would it be this second half of FY 2025, 2026? I mean, what's your sense on when do we eventually see this approval, given the long wait already?
Yeah. No, I wish I had a more firmer answer for this. As Peter rightly alluded to earlier, we've made good progress in terms of how we've approached the agency. There's conversation going on, and Rhonda can elaborate later in the discussion. She's our Chief Operating Officer.
I think at this stage, we are at a point where we are awaiting the FDA to come on site and inspect us, and we should be able to move this forward. There is no outstanding question on the science. There is nothing that part is pending. So once we get past that and schedule that inspection, Neha, we should be in a better position to answer that question.
Understood. And Saurabh, sorry, I'm going to squeeze in one more. If I look at the BBL net debt to EBITDA, we are tracking over four times net debt to EBITDA. What's the sense of the net debt reduction path that we have for BBL, and what's our comfort level, let's say, 12 months from now?
So Neha, maybe I'll take that one to Saurabh. Clearly, we've identified strengthening the balance sheet and debt reduction as a priority.
As I said earlier, we've reduced that by $200 million in the quarter. It will remain a focus. At the levels that we have, we're comfortable at a BBL level and BL level, but clearly, we'll be working our way to reduce that over the coming quarters.
Understood. Thank you so much, Peter.
Thank you, Neha. We'll take the next question from Damayanti Kerai from HSBC. Damayanti?
Yeah. Hi. Good morning. Thank you for the opportunity. My question is again on biosimilars. So you obviously are seeing good contract wins in some of the key launches. So I just want to understand the pricing part of these contracts also, whether we are gaining volume, but how is the scenario on the pricing part? Because competition definitely has risen in all the products. So that's the first question.
Then what kind of discussions you are undergoing currently for Adalimumab, I guess, maybe not for this year, but for future? And what are the key queries which you might be getting from your channel partners and which you believe can help you to gain better access there? So that's my first question.
Thank you, Damayanti. Again, I'm going to ask Shreehas and Matt to answer those questions.
Yeah. Thanks, Peter. Maybe Matt, if we can start that, and then I can add on to this.
Yeah. Sure. Thank you very much. Look, I think it's important we start, let me explain in the U.S. a little bit from a standpoint of what we've actually seen in market share and growth. And I'll explain to you during this time the pressures that we're seeing in winning these.
But for our Fulphila, if you remember, we're at that 19% market share, which is up 12% over the last month. So we've seen a great run in our market share and potentially new player, with even potentially new players coming into the market, as well as we're seeing Ogivri. We're seeing wins in that opportunity. When it's in the Part B, Part B deflation is much slower because the way in the U.S. it's attributed to the ASP. So this business continues to have pricing pressures, which we're seeing uptake in addition to volume in which we're winning in our Fulphila and our Ogivri. But our number one piece of this is to make sure we're looking at price optimization and not driving this down as we prepare for additional products within our oncology space.
Let me also remind you, on the insulin glargine side, which is the Part D, we've seen great progress in the market share. As Peter alluded to, even though you're seeing that 12%, a couple of key things there is that closed-door network or pharmacy that attributes additional about 3%-4% in the overall growth of our insulin glargine. The second piece of this is we've had two large payer wins that started at the beginning of this year that's going to add additional opportunities within our insulin portfolio. We're also anticipating in the insulin portfolio, after everyone knows of the WACC reset that we saw by the large insulin players, we're anticipating the pricing of this through the next year to hold pretty steady. As you had asked about Adalimumab, we are seeing wins. We're seeing them steadily progress.
It's about 10% of the total U.S. lives, and we continue to see this opportunity primarily in some commercial, as well as in managed Medicaid and Medicaid FFS. And so these are continuing. As you know, the bidding cycle is starting, especially for Adalimumab with what has been announced by CVS Health and those aspects. Let me comment too on Europe real quickly, and then I'll turn it over to Shreehas. We've seen nice growth in our Bevacizumab and also continued growth in our Peg as we look at tenders and opportunities in our retail sector. That's adding on to our strong position already with our Adalimumab in Germany as well as in France. So hopefully, that was clear on answering your questions there, but I'll turn it back over to Shreehas for more clarity or any other insights.
No, thanks, Matt. I think that was pretty comprehensive. I'll hand it back to the question board.
Thank you for the explanation. My second question is on an update on the Malaysia plant. So what are your expectations, and what kind of timeline should we be looking for resolution of issues there? And just another question on bevacizumab. So do you think it's still a meaningful opportunity for you to pursue, given we are seeing a delay in approval and launch there?
So I think perhaps Rhonda, you can lead on the Malaysia question. And Shreehas, maybe you can pick up on the Beva question.
Yeah. Rhonda, go ahead.
Thank you very much, Peter and Shreehas. Yes. So the Malaysia facility is now awaiting reinspection from the FDA. We have been actively engaged with the FDA and discussing with the agency on a number of occasions. We are patiently waiting for them to arrive for the inspection. We're ready.
In terms of the Pertuzumab question that you had asked, I think Rhonda can respond to that as well. I think we are in that same position that she just described for Malaysia as well, where we file everything. We do not see any questions on the signs, and we are waiting for the agency to come and inspect us. So that's where we stand at this point.
But still a meaningful opportunity as for you to pursue it?
Yes, certainly. I mean, Aspart in the U.S. continues to be we continue to be in the pole position with the opportunity to be the first interchangeable biosimilar Aspart in the U.S. market. So clearly, we remain excited there.
On Bevacizumab, Matt has in the past alluded to the uniqueness of the market and while there are clear opportunities for those who come in early, there's also opportunity for companies which can come in at a deferred time point, given the way the Part B market is structured in the U.S. So yes, I do not see us being or let me put this way. We see us being excited about both these products as well.
Thank you. Thank you for your response.
Thanks, Damayanti. We'll take the next question from Surya Patra from Phillip Capital.
Yeah. Thanks, Saurabh. Thanks a lot for the opportunity. So my first question is on the BBL performance. So while we have seen post-integration and all that, we have seen a ramp-up in the market share for most of the biosimilar that is currently there on the market.
But in terms of the revenues, it looks like that, like-to-like basis, we have seen a downward trend only. And particularly this quarter, if I adjust for the one-off gains, see, then it looks like it is a loss-making operation while this is the biggest component of our business. So my question is that, so till the time that we are not seeing incremental revenue from the newer pipeline, so should we be worried about the performance of the BBL in the near- term?
Let me ask Kedar to pick up on the financials on that first, and then maybe Shreehas, you and I can comment once Kedar has addressed the core of the question.
Thanks, Peter. So Surya, I think your feedback is we hear your feedback. See, there are two, three adjustments you need to make before you compute steady-state PBT margins.
Firstly, the gain from sale of brands in the revenue line is INR 350, but if you account for the costs and all the items for that, in the PBT, it's about INR 330. So that's one adjustment you need to make. Secondly, in the SG&A line, you will see a step-up from quarter two to quarter three. What has happened is this quarter, across the countries, we had deployed multiple consulting experts and professional services for IT, for people defining various SOPs, for regulatory, for customer service, invoicing, and collections. All of that is a chunky value which has come in this quarter. So that's almost 5%. So I mean, that is something that one needs to add. And if you see R&D, which is the third one, please take a quarterly average. This quarter is beyond 12% or 13% of revenue. We don't spend at that rate.
So if you make these adjustments, you will get to something which is more steady-state, and that will give you an appropriate idea as to the margin profile. So that's the right thing to look at it, Surya.
Sure. Yeah. So just an extension to that, we have also seen that the company as well as the BBL signing a contract of signing an agreement, which is an equity support agreement. How should one read this, whether it is indicating any challenge to BBL because of the upfront cost that is involved for the business, or how should we really practically read it?
No, in fact, there is no cost to it, Surya. See, these are the letters which are provided by parent to the subsidiaries. And this kind of comfort letters actually help to enhance the credit and negotiate on the cost of capital, actually. This is quite positive. These are quite common where a parent gives this kind of letters to the subsidiaries.
Okay. Just last one from my side. This is about Adalimumab. See, what we have understood from the various other participants to the opportunity in the U.S., so they are commenting now, "Adalimumab is an opportunity of calendar 2025 because even after signing contracts, so nobody is expecting any great kind of a ramp-up for Adalimumab." So is it fair to believe that this opportunity is getting extended or delayed to CY 2025, even for us?
Surya, I can start, and Shreehas, please come in and expand. I think the broad answer to your question is yes.
I mean, it's very clear that the market for Adalimumab is not going to open up in a big way in calendar 2024, and the expectation is that that will happen in a more structured fashion in calendar 2025. The opportunity perhaps hasn't gone. It's just been shifted in time a little bit. We are working hard, and Matt can talk to that. We're making gains and wins in some of the contracts. It's going to be a slow build, not a big bang, and we're going to be building our position from a starting point to build a foothold, and then from a foothold, we'll look to build onto that towards a stronghold. So I think it is going to be a much slower evolution than the market originally anticipated, but I think that's a market phenomena more widely.
Shreehas, or Matt, do you want to add any other comment?
Yeah. No, thanks. I think, Peter, that was well covered. I'll just add one piece, Surya, to this. If you note what we had said even in the past, that we see the market opening up in 2023, but it'll be 2024 that you'll start seeing some movement. But it's really 2025 that you will really see the market opening up. And the reason we had said this is because this is the first Part D product that has lost exclusivity in that sense, and it's a very large asset. So there is this part of the U.S. market that's still figuring out how this is to be done. So we see this happening as more commercial payers take the brand off, and then biosimilars see a greater traction.
We've seen that happen in Europe, where biosimilars have a sizable portion of the market. We've seen that happen in the Part B space in the U.S., where many of the oncology products, you're seeing more than 80% of the market move towards biosimilars. That's not happened with the Part D drug, which is in the immunology space, and we were expecting to see that anyway in 2025. But a greater extent will start showing as more products come into this space. I would just add that to what Peter said, but otherwise, I think Peter's response is quite comprehensive.
Yeah. Sure. Thank you. Wish you all the best.
Thank you, Surya. We'll take the next question from Shyam Srinivasan from Goldman Sachs.
Yeah. Good morning. Thank you for taking my question. Just the first one on Semglee and the competitive dynamics around it, right?
I think Peter talks about unbranded glargine along with Semglee at 12%, and then there is, I think, a 3-4 percentage point on top of that. Just correct me if I'm getting those numbers wrong. But just want to understand, when we look at the pipeline for 2024 calendar year, I think two Chinese insulin guys are likely to be in the market. I know they have different front ends, like Sandoz, I think, and King-f riend. So what do you think about the or how do you think about the competitive landscape for Semglee? Is there still upside? Sorry, I missed the opening remarks. Have you signed some more contracts on Semglee specifically?
Hi, Shyam. And thanks for the question. Maybe, Matt, you can pick up on the sort of competitive position and our position. And again, Shreehas, you pick up as well on any additional aspect.
Yeah. Thank you, Peter. To your question, we continue to see progress, nice progress, with our market access with insulin Glargine. As I mentioned in my opening remarks, we have one and secured two large payers that started 1/1/2024. We are very closely. We watch any competitor movement or possibility. We remain determined. Diabetes is our franchise. We will be competitive if these folks launch. We do have, remember, in the U.S., we have significant agreements. Now, can these payers open them up? Possibly, but it's also timing based on formulary. And they're normally one year. So as you mentioned, these two new competitors that could possibly—they're not here today, but we are absolutely planning to move forward. We defend our portfolio in other areas, and we plan on defending our portfolio if any new launches do occur.
I do think that being the first to the market and establishing these relationships and the stickiness of our insulin and Semglee in the marketplace holds well for us as we look at these potential new competitors that could be coming into the U.S. market.
And sorry, Matt, just as a clarification, so how much percentage point should I be adding on top of the 12 for this closed-door pharmacy?
We're estimating between 16%-17%, and then as compliance continues to ramp up, but currently, right now, between 16%-17% for our fiscal year as we see these run rates increasing.
Helpful. Just the second question is on the generic side of things. I think the readout talks about pricing pressure on the API side. If we could get an update on I think we had earlier aspirations to grow double-digit, but we seem to be struggling. So it's just an update on the generics, please.
Thanks again, Shyam. Sid, can you pick that one up?
Yeah. So Shyam, yes. I mean, we are looking at double-digit growth. Unfortunately, in FY 2024, that looks unlikely. Our formulations business is doing very well in the U.S. and in other markets. We have started receiving approvals. We have started launching these products, and that's driving a high double-digit growth. But unfortunately, we've hit some challenges in the API business, and the pricing pressure in the U.S. and other markets continue to be a challenge. And that, of course, impacts the offtake from our customers. And I think that we definitely believe that this is just temporary because we are working on necessary steps like cost reduction, bringing in more operating efficiencies to be more competitive for some of our synthetic products.
Directionally, I do not see any challenge, and we should be able to get back to the mid-teens kind of growth level in the next fiscal. I think Peter did mention earlier that, of course, there's a lot of focus on peptides, and we do see that starting next fiscal year, we should start seeing revenues coming in from peptides.
See, that's a little confusing here because any formulation company we talk to is talking about U.S. generic being actually in a sweet spot, like low single-digit. Is our portfolio so dramatically different that we are seeing this price erosion even now in first quarter calendar of 2024?
Yeah. So I think from a I think what you've heard is correct, that there is stability in the U.S. market. As I mentioned, we have also gained market share and new business for our formulations business.
But when it comes to the API, which, of course, API customers have options buying from us versus other competitors, and that's where we are seeing a little bit more stringent competition where there are a lot of capacities the Indian companies, the Chinese API suppliers have created. And there is a bit of a price war, I would say, between these companies and the generic formulation companies. While they are winning the business, they are, of course, passing on the pressure or the heat to the API suppliers.
Okay. Just last question, and I'll stop. It's just on the deleveraging plan. Again, just going back to an earlier participant, just trying to understand the acknowledgment that when we reduce the $200 million net debt number, is it an acknowledgment that our current cash flows are slower than anticipated, which is why we have to do these divestments?
Is there more that we need to think of, shareholding in Syngene? I'm just throwing it all in there. But how should we look at the path ahead? Thank you.
Let me start, and then Indranil said you may want to come in. So as I said in my opening remarks, I mean, clearly looking at the balance sheet is a focus that you can see that in the last quarter, we've reduced acquisition-related debt in BBL by $200 million. We want to reduce it further, and we will be looking at a range of options. Clearly, cash flow will be one from the operations, and that will be a focal point. But there are other options that we could employ as well. Shyam, it's going to remain a focus. We're going to look to bring it down.
Cash flows from operations would clearly be a preferred way to do it, and we'll be focusing on that. But there'll be others as well.
Thank you and all the best. Thank you.
Thank you, Shyam.
Thank you, Shyam. The next question is from Vipulkumar Shah from Sumangal Investments. Please go ahead.
Hi. Thanks for the opportunity. Just wanted to know this contractual arrangement to $1 billion. So what is regarding any?
I'm sorry. I can't hear the question at all.
Sorry?
Sorry, Vipulkumar. I can't hear your question. You're going in and out on the audio.
So my question is regarding this contractual arrangement of $220 million. I think you're opening remarks. What is this regarding?
Right. This is regarding a contractual receivable arrangement that we had that's matured. And because of the confidential nature of the arrangement, we can't disclose any further details.
Okay. And I want net debt figure including structural instruments. Is it possible?
Again, I'm not hearing the question.
I want net debt figure including structural instruments at BBL level.
I see. Okay. Indranil, can you address that?
Yeah. I think the number at BBL level is $1.2 billion, and there could be another $100 million of structured. So around $1.3 billion would be the number. Kedar, I think that's directionally right, right?
Yeah. So Vipul, we can connect offline. This number is in line with what we disclosed as debt. So for the structured, we have to understand what you mean by structured debt or structured equity. I think let's take it offline. But this $1.2 billion is in line with what is classified on balance sheet as debt.
My last question is, what should be the cumulative integration cost because it is coming every quarter? So from the date we acquired this Viatris business, what should be the cumulative total integration cost so that we can have some idea what is going on?
So Vipul, we don't have that number handy with us. As I mentioned, this quarter, by virtue of multiple contractual arrangements for many activities which were important to integrate ahead of time, that number is roughly 5% of revenue of BBLs. But cumulative number, we don't have it handy. Again, we can take it offline.
Should I contact offline?
Yes. Yes, please.
Mr. Kedar, right?
Yes. Yes, Vipul.
Thank you. All the best.
Thank you.
Thank you, Vipul. We'll take the next question from Tushar Manudhane from Motilal Oswal . Please go ahead.
Yeah. Am I audible? Yeah. Am I audible?
Yes, Tushar.
Yeah. Thanks. Thanks for the opportunity. Sir, just one more clarification on the notes. The impairment with respect to almost INR 380 crore is with respect to which product?
I can take that, Peter. So Tushar, this is with respect to RHI for the U.S. So currently, we have paused this program because we feel pretty excited about the opportunity of Aspart and other analogs. So since we have paused it as required under the standards, we have taken this impairment charge. And there have been, as you know, policy pronouncements and things like that. So I think our prioritization for analogs has required us to take this as required under the accounting. So that's the charge. But Shreehas, if you could follow, please.
Yeah. No, I think, Kedar, you've covered it. There's any clarification I can provide?
No. So that's fair. And secondly, even the provisioning is also there with respect to certain product.
If you could also comment on which product are we taking this provision of INR 240 crore?
Tushar, we are not calling out products. This was the inventory which was acquired as part of the acquisition. And these are not expired products, but our assessment of the pending shelf life and the ability to liquidate, again, has required us under the standards to create a provision. So it's pertaining to the inventory which was acquired. And this is approaching expiry, but it's not yet expired. So we still have some chance to liquidate, but on a conservative basis, we are providing in this quarter.
Understood, sir. And just lastly, given that certain potential approvals because of inspections are getting delayed, but we do have multiple contracts, and at the same time, certain price erosion because of competition.
In fact, quarter-over-quarter, if I exclude Eris income, the biosimilar sales have been stable to slightly declining. So given these circumstances, how to think about growth, particularly for biosimilars business over the next 12-15 months?
Thanks, Shreehas. Send that to you.
Thanks. Thanks, Vipul. I think the first thing that I would look at here is that going forward, particularly, we see opportunity in the existing products growing through market share. We've talked in the earlier part of this call about awaiting new approvals due to the inspection delays. So while we await that, what we are very focused on is to grow with the business through increased market shares. And I think that is what you are seeing at this point, Tushar, where almost all our products in every geography that you see are gaining market share. So that is one aspect of it.
The second aspect that you should see is what Matt talked about earlier is in Europe, where earlier, the business was focused only on a couple of countries with one or two products. I think the focus will be to see now that we have approval in Europe with seven of our biosimilars, we would look to see a twofold strategy there. One is to see if we can penetrate the couple of countries that we are present in with more products. And second is to see if we can widen our reach beyond the two countries into at least the big five or the EU5 . The only piece I will put there is that our control of the European business is a month old.
So Matt and the European leadership are putting that commercial strategy in place, but that is how we are going to be looking forward to growing the business even as new products come into the fold.
Sure. Thanks. Thanks a lot for addressing the queries.
Thank you, Tushar. The next question is from Pranav from Rare Enterprises. Please go ahead.
Hi, sir. Can you just highlight about the debt that we have taken for Viatris? You referred to it that 30% of it is fixed rate, 30% of it is payable, and 30% of it is hedged in last quarterly con-call. So can you just let us know what is the reset time, and has the interest rate actually come to current interest rates? That is one. And also, are interest payments in that actually going to affect our various other research programs?
Because if we just remove one-offs then and include the expenses that we are incurring in BBL, then actually, BBL margin looks negative. So I know there are many one-offs. So how are we going to manage cash programs? Because I fear that it can affect our other research programs. Thanks a lot.
Thanks. Let me perhaps, Indranil, you address the first question on the interest rates related to the debt. And I think, Shreehas, you already touched on how we're looking at one-off costs related to transition, creating further margin going forward. And maybe you can follow up on that part of the question. But Indranil, first, on the interest rates, please.
Yeah. So I'll cover a part of it and let Kedar maybe confirm some of the facts. But from an interest rate perspective, our acquisition debt was somewhere around 6%.
The current market environment, we still see the SOFR levels pretty high. And while there are indications of tapering down, at current market levels, they're hovering around 7%. But there are indications with IRS that this could come somewhere around 5.5%. And so our current debt profiles are still kind of at that level. I'll let Kedar confirm in terms of the strategy that we have in terms of the mix of our debt and how do we p lan to hedge the balance.
Yeah. So you're right, Indranil. I think it's the SOFR linked facility. And as the SOFR moves, obviously, the effective rate that we have gets addressed. So that's fine. And yeah, while there's an indication that there'll be a reduction, current rates are high. But let's wait for the news on the six-nine months.
So that's on the rate and the way we capture interest on the books. Sorry, what was your next question, Pranav?
I think the second part of the question was looking at the BBL margin opportunity for expansion. I think Shreehas has covered it both in terms of looking at the growth of existing products in existing markets and existing products in new markets and also the recognition that in this quarter, there is, as Kedar has explained, roughly 5% of revenues that's related to one-time one-off costs related to completing this accelerated transition.
Right. So my question is that, is cash flows limiting our development and product research programs? Are we pausing something so as to prioritize something else? Also, is existing biosimilar products facing pricing pressure so that the revenue QoQ is a little bit less than expected in spite of volume ramp-ups? Thanks a lot, sir.
That's it. Shreehas, I think, Matt, you can start on that.
Yeah. Thanks, Peter. I think, Pranav, I've consistently talked about this even in the past, that pricing is always an outcome of market competition. You will see competition challenge pricing in the market as products mature. We've seen that kind of behavior where you've seen a very mature price erosion on the medical benefit side in the U.S. You've seen that hold steady for the last five, six years. We are seeing reasonable price erosion over a period of time. You've seen very different behavior on Part D product where you've seen the first such product, Adalimumab, which lost exclusivity. Very different behavior, same market, different influencers. That is going to happen given there's competition.
Now, whether that is reflective of what will continue to happen going forward, I think one of the things we should be prepared for is competition will challenge pricing. The key thing to look out for, which Matt talked about earlier, is policy changes. Those are the ones that can dramatically change how pricing is looked at. IRA in the U.S. is one such policy change that has recently come into play, which, of course, changed the insulin landscape starting 01/01/2024 where the administration talked about $35 co-pay for any insulin, no matter which product it is. So some of these things we need to look out for. The business needs to have the resilience to be able to combat this.
And that's where our strength in portfolio, our strength in process development, our strength in having done this for a long period of time, and now, more importantly, being fully integrated, gives us the levers to actually combat this. And there will be quarterly aberrations, which I've said even in the past, should normalize over a period of time. But yes, it will require you to look at a broader horizon.
Pranav, does it answer your question?
I think Yash, something sort of I think we probably responded. We'll move to the next caller.
The next question is from Yash Tanna from ithought Advisory. Please go ahead.
Yeah. Hi. My question is, on the BBL IPO, if we can have an update on the timelines of the IPO, and are there any prerequisites that we need to fulfill before we have to go ahead with the IPO? So that's a question.
Thanks, Yash. And I think Shreehas has spoken about the IPO timing on several occasions. But Shreehas, perhaps you could emphasize again.
Yeah. Thanks, Peter. Yash, thanks for your question. And I think one of the things that I've always talked about is that there are certain things that are very critical to focus on right now is to create value for all stakeholders. And one of the key things after we went through the large acquisition that we did was to make sure that it was not just acquiring the business but gaining control of all the business across the countries, which we didn't have. We were operating under a TSA. And it was important that even before we talk about any IPO, we first focused on gaining control across all geographies. It was a two-year TSA.
We focused on gaining control as soon as possible so we can be in better control of our destiny. So that is now complete as of last quarter. Now, we are now able to make our own decisions, have full visibility going forward, even though it's just one month old today. The second thing is from a prerequisite that you asked, I think it is extremely important that we focus on the FDA approvals. This is an enabling provision which allows us to unlock value in the portfolio that we have been investing in. And I think it has dogged us for quite some time, which I think all the leadership has been very focused on, engaged with the agency. And we are awaiting them to come and inspect us. So we are very focused on making sure that we have the FDA unlocked before we talk about that.
The third very critical piece is we need to move from an integration acquisition phase to a more consolidate and grow phase, which is how our strategy has been focused with. First was to preserve value. You heard Peter talk about it, that we have focused on business continuity, not dropped any customer, any order, any patient supplies. So that was first. Now, we consolidate the business, bring it to a steady state so we don't have these one-offs that we are talking about at this stage. Then we can then talk about what is the appropriate time for an IPO. Peter and the leadership team, we can all discuss what that would be. But I would lay out some of these things as very important for us to focus on in the near-term priorities on biologics. Peter, back to you.
Yeah. No, I think you've covered that, Shreehas. I think, clearly, we would look at an IPO when we have the right story and shape. And a big part of that is going to be related to momentum that we have with existing products and existing markets. And as Shreehas and the team have described to that into new markets, of course, new products is going to be a driver. And that relates to Shreehas's comments on the regulatory timeline. So we'll be looking at that through those lenses.
Thank you, Peter. We'll take the next question from Harith Ahamed from Avendus Spark. This will be the last question for this call.
Hi. Good morning. Thanks for the opportunity. So the first question is on Ustekinumab filing. Previously, we had talked about completing the filing for this in the near- term. So any update there?
Thanks, Harith. I think that's a question either for Shreehas or Rhonda.
I think the answer, Harith, to that is yes.
So we've completed the filing. Okay. And the second one is on the integration-related costs that we've seen in this quarter as part of other expenses. You called out that this is roughly 5% of Biocon Biologics' revenue. So can we assume this is a one-off, and to this extent, we'll see an improvement in Biocon Biologics' EBITDA margins starting fourth quarter?
So Harith, I would be sorry, Peter, if I can take the question. So I think for doing margin analysis of the quarter, those two, three adjustments, Harith, which I referred to, I think that you should consider. So the gain in the P&L, not in the revenue line, on the sale of brands is about INR 330-ish. That is, SG&A is 5%.
R&D, just take a quarterly average rather than this quarter because this quarter is slight bump-up. So that will give an idea about the margin of this quarter. And with respect to steady-state margins, we would like to be in the same range, right? And your question is whether 5% will go up. It will go up next quarter. The question is whether we have to invest on that something else. So I think we would like to reserve our comment on that part. But for this quarter's margin analysis, I think these are the adjustments that you need to make.
Okay. Got it. And Shreehas, on the RH insulin comment that you made that we have suspended our activities there, so a bit surprised given that we have completed trials and we have done a filing there.
I see that it's a fairly large opportunity and with very limited visible competition out there. So can you explain a bit more on the thought process there?
Yeah. No, fair question, Harith. And Kedar did talk about it in the beginning. The color that I would like to provide on that is, see, we have been always very committed to insulins globally, particularly in the U.S. as well. And today, if you look at it, Glargine has been a big success. We are seeing Aspart at a point where we are awaiting inspection. So the science has been well developed. We've also seen our RH insulin where we have it's not one product. It's three different products. We've filed for insulin R. There is also insulin NPH. There's also insulin 70/30, which is a mix.
You have to develop all three as different products and do clinical trials for all of them, at least phase I. Phase III, we have a waiver right now. Now, once you've done that, that three products put together is roughly a little under $1 billion as a franchise in the U.S. Now, in light of the recent policy changes, which I talked about to a previous question, I think it's important to see how this shapes up, and which is why we have paused that, like Kedar said, because right now, the policy advisory is that it's $35 no matter which insulin is prescribed as a co-pay. So we just want to make sure that we understand this. We see how the market evolves. We have two great products in that market. You heard Matt talk about us gaining market share, gaining customers.
So we first want to capitalize on the investments we made before we embark on further development and take on further costs. I think that is really the rationale.
Okay. Got it. Thanks for that. And last one, with your permission, on our B3 facility, can you talk a bit about whether we have started commercial supplies from there? I understand that we have an EU GMP certification for the facility. But in terms of U.S. FDA timelines and our supplies to the U.S., can you comment a bit? Yes. Peter?
Shreehas, do you want to comment on that?
Yes. Thanks, Peter. I think the B3 facility is an exceptional facility, Harith. It was awarded the ISPE Facility of the Year award. So it's really one of the acknowledged, awarded facilities in the country for biologics.
It has been approved, and we continue to supply product from that facility to Europe and several other parts of the world. We are awaiting the agency to inspect us so that we can supply to the U.S. as well from this facility. But I will let Rhonda comment on this just a little just so that you get a flavor because she has been the one leading this entire operations effort. So over to you, Rhonda.
Thank you, Shreehas. Yes, the B3 facility is definitely something that we're really keen to make sure that we actually utilize for the U.S. also. However, it's not a case that we're not utilizing it. It's certainly very active and very much used right now in terms of supplying Trastuzumab, Bevacizumab to the rest of the world. So it's very much in use, very much active in that sense.
Of course, we need to approve every new facility for use in whichever region it actually is. We are awaiting that inspection from the FDA for the site in Bangalore so that we can actually put it into use for the U.S. also. Remember, we have B1 very much active in terms of supplying the U.S. There's neither a challenge to actually supply, nor is there a delay in actually utilization of the facility overall.
Thanks. Thanks, Rhonda.
Thanks. That's all from my side.
Thank you, Harith. That was the last question for the day. Thank you, everyone, for joining us. If there are any further questions or clarifications you need, please do contact with us. Have a good rest of the day.