Chairperson & Managing Director
2018 marks 40 years of Biocon's journey of endurance during which we have pushed manychallenging boundaries to provide us with a leading edge as India's premierbiopharmaceutical enterprise.
Developing biologics for global markets takes patience deep pockets and an unwaveringfocus. Navigating the research development manufacturing and regulatory pathways forthese cutting-edge therapies are akin to endurance races. Many competitors dropped out ofthe race when faced with the grueling obstacles of regulatory and investment risks.Skeptics told us that a small biotech company out of India would find it difficult to meetthe quality and manufacturing standards demanded in developed markets. We ensured that wethwarted such concerns with a deep commitment to quality and regulatory compliance. And itis this never-say-die spirit that has given us an 'enduring edge.' We demonstrated ourcompetitive edge this fiscal when we became the first Company from India to get itsbiosimilar Trastuzumab approved by the U.S. Food and Drug Administration (FDA) in December2017.
This product has been co-developed with our partner Mylan and will be launched in theU.S. market under the brand name Ogivri.
We crossed another landmark this year when Semglee our Mylan-partneredbiosimilar Insulin Glargine was approved in EU and then in Australia.
In June 2018 Biocon and its partner Mylan became the first to receive approval forbiosimilar Pegfilgrastim from the U.S. FDA.
These approvals have propelled us into an exclusive league of global biosimilarsplayers.
Biocon: At the Right Place at the Right Time
These achievements will enable us to deliver on our stated promise of providingaffordable access to life saving biologic drugs which represent a large and increasingportion of the overall prescription drug market. In 2017 biologics accounted for 11 ofTop 15 drugs by value. (Source: Genetic Engineering & Biotechnology News). Asthese drugs are complex to develop they are exponentially more expensive thanconventional prescription drugs. The advent of biosimilars or biogenerics providerelatively lower cost access to these advanced therapeutics and thereby an opportunity forsignificant savings for patients insurers and the healthcare system overall. As patentsexpire on novel biologics the biosimilars market is expected to grow rapidly exceedingUSD 28 billion by 2020 from the present USD 5 billion. (Source: Genetic Engineering& Biotechnology News). Biocon is today well poised to enter the developed marketsof U.S. and Europe at a time of increasing acceptance of biosimilars.
The European Union has over 40 biosimilar drugs approved since 2006. The U.S. iscatching up fast with 11 biosimilar approvals over the last three years. There is greaterclarity now on "interchangeability" of biosimilars extrapolation of clinicaldata to other indications and the ability to launch upon approval subject to patentexpiry in the U.S. Encouragingly U.S. pharmacy benefit managers (PBMs) are givingpreference to biosimilars.
It is equally reassuring to see the regulatory willingness to abbreviate the approvalpathway for biosimilars based on advancements in the understanding of biologic molecules.These developments are helping to ensure that safe effective and affordable biosimilarsreach patients faster as payors and prescribers gain greater confidence in increasingtheir adoption.
Differentiating to Lead
At a time when the prevailing business ethos favored predictable and attractive ROCE(Return On Capital Employed) ventures based on chemically synthesized generic drugsBiocon chose to invest in developing biologic drugs based on recombinant DNA ledbio-processing technologies. This called for a combination of specialized talentstate-of-the-art research and manufacturing infrastructure and a culture of deep scienceand regulatory compliance. The ability to comprehensively deliver on these have given usthe edge' to produce innovative and affordable biologics at a scale that can addressglobal market needs.
Our core values of quality affordability reliability and innovation havedifferentiated us in the marketplace and given us a distinct competitive edge. We haveearned the distinction of being one of the Top 3 global players of biosimilar insulins involume terms which enables us to pursue our goal of supporting one in five'insulin-dependent people with diabetes the world over.
Climbing the Learning Curve
Over a span of a decade we have developed a rich pipeline of approved andin-development biosimilars that have concurrently built high end R&D and regulatoryexpertise.
Our lab to market' journey for biologics started with two novel monoclonalantibodies Nimotuzumab for cancer and Itolizumab for autoimmune diseases. It is thisapproach that has enabled us to acquire deep insight into immunology and antibodytechnology. Additionally we have leveraged this knowledge to develop a wide portfolio ofbiosimilar drugs to address a large and evolving worldwide demand.
While the opportunity was vast we realized that the investment and regulatorychallenges posed grave risks. We therefore chose to partner with Mylan a global leader ingeneric medicines who was willing to share the risks and co-develop a mutually selectedportfolio of biosimilars for worldwide marketing.
We also recognized the additional risks of developing biosimilars against a backdrop ofevolving regulatory pathways in different global jurisdictions. To this end Biocon andMylan have worked closely to play a key role in the knowledge exchange with regulatorspayors and other stakeholders in order to enable the evolving regulatory pathway forbiosimilars.
Pursuant to our growing stature in the biosimilars arena we have entered into anotherglobal partnership this fiscal with Sandoz a Novartis division for a set ofnext-generation biosimilars.
Both our partnerships have been forged on cost and profit sharing. Whilst our partneredprogram with Mylan addresses market opportunities that emanate over the next five yearsour partnership with Sandoz will address patent expiration opportunities thereafter.
Path-breaking Novel Innovation
Apart from biosimilars our biologics strategy has had a keen focus on developing apipeline of innovative drugs. We continue to progress on our novel programs that encompassfusion antibodies and cutting-edge antibodies; which have generated encouraging andexciting data garnering a great deal of licensing and partnering interest from leadingpharma and biotech companies.
In FY18 JDRF extended their support to our R&D efforts aimed at developing ourfirst-in-class oral insulin molecule Insulin Tregopil to treat Type 1 diabetes.Recently a large investigator-led study with Nimotuzumab in head and neck cancer patientsin India established the molecule's 'best-in-class' status for the treatment of one of themost common forms of cancer in the country.
Running India's largest biopharmaceutical company in a risk-averse investmentenvironment has been a constant balancing act. Our biopharmaceutical strategy entails ahigh risk-high reward model. In order to balance the risk profile we have adopted ahybrid business model that generates predictable earnings which help to support theinvestment needs of our biosimilars portfolio. Additionally our collaboration with Mylanhas provided a risk sharing platform that is now at a stage of delivering commensuratereturns to both partners.
Biocon's mission of making a difference to global healthcare calls for sizable capitalintensive investments in research and manufacturing infrastructure to deliver economies ofscale. Over the last decade Biocon has built India's largest bio-manufacturing facilitiesin Bengaluru and Asia's largest Insulins manufacturing complex in Malaysia. We have alsoinvested in creating one of the largest fermentation based bulk drug capacities forStatins and Immuno-suppressants globally. These investments have and will enable us tohave a significant global footprint to serve patient needs.
Over the past year we initiated the construction of our second antibodies facility inBengaluru to support our projected biosimilars business for the next decade. The yeargone by has also seen capacity expansion of our Malaysia insulins facility. Ourbiopharmaceutical facilities have received drug substance and drug product approvals fromseveral regulators globally.
In FY18 our manufacturing sites in India and Malaysia underwent several inspections byvarious regulatory agencies as a part of the drug product approval process. Some of theseaudits led to regulatory observations that were largely procedural and aimed at continuousimprovement but some also required remedial measures including plant modifications inorder to be fully compliant. We have also proactively engaged qualified third partyconsultants and external experts to assess the effectiveness of the corrective andpreventive actions undertaken by us and evaluate our quality systems and manufacturingoperations in order to be on par with global best practices.
FY18 delivered revenue of H43359 million and a YoY growth of 6%. Net profit for theyear stood at H3724 million. The revenue growth in FY18 was driven primarily by a 19%increase in our Research Services business a strong turnaround post the fire incident inDecember 2016. Our Biologics segment revenue delivered a modest 10% growth on account of aplant shutdown that was required for modifications and requalification post regulatoryaudits. Branded Formulations sales increased 11% YoY whilst our APIs business de-grewmarginally due to pricing pressure exerted by a commoditizing market. Significantly lowerlicensing income also muted earnings. Our Group EBITDA at H10353 million for the yearrepresented an EBITDA margin of 24%.
We ended the year with a strong fourth quarter wherein Biologics and Research Servicesbusinesses grew 47% and 45% respectively and the Small Molecules and BrandedFormulations businesses turned in a positive performance indicating a normalized businesstrend.
Sustainability Programs and Social Responsibility
At Biocon we are intensely conscious of our role as a responsible corporate citizen.Our business philosophy that aligns with the importance of sustainable healthcaresolutions finds resonance in our engagement with our employees the environment andsociety at large. We are constantly investing in adopting best practices for a safe andhealthy environment. Our CSR efforts through Biocon Foundation are directed at addressingcritical national and state level gaps in primary healthcare education environmentalsustainability and rural development.
The Foundation has developed a unique eLAJ Smart Clinic model to deliverdiagnosis-based primary healthcare to communities with poor access to quality healthcare.The eLAJ network has been further expanded this year with the addition of 10 new clinicsin various districts of Karnataka. The 21 eLAJ smart clinics run by the Foundation haveprovided healthcare services and recorded nearly 230000 patient visits in FY18. InRajasthan the Jhalawar primary healthcare centre (PHC) run by the Foundation was declareda model' PHC by the Rajasthan government.
We have also conducted a number of health camps of which our flagship cancer detectionprogram has screened over 53000 men and women for oral breast and cervical cancers tilldate. Patients with potential risk have been supported to undergo further evaluation.
As a part of our efforts aimed at ensuring environmental sustainability Biocon hastaken an ambitious initiative to contribute to the lake revival mission of Bengaluru.Biocon Foundation has embarked on saving two large lakes in the vicinity of ourfacilities. Bioremediation has resulted in significant improvement in the water quality ofthese lakes. Steps are now being taken to ensure that these water bodies are spared fromsewage debris and garbage dumping.
On the education front Biocon Academy has continued its mission of training biotechstudents into industry ready talent. The Academy has an unblemished 100% placement recordwhere its students have been hired by leading Indian biotech and pharma companies.Building on the success of the current programs we have rolled out two new programs forClinical Development and Faculty Development in FY18. So far over 400 students havegraduated from Biocon Academy.
The year gone by has witnessed the significant progress made by our biosimilarspipeline in gaining approvals from the U.S. FDA European Medicines Agency (EMA) andregulators of emerging markets.
These approvals are expected to translate into accelerated revenues in the years aheadstarting with FY19. Syngene is poised to do well on the back of a vibrant outsourcingmarket and robust long term demand. We are also moving up the value chain from APIs togeneric finished dosages which we anticipate will drive strong growth in the SmallMolecules business and help us recover from the headwinds that we have faced in the yeargone by.
Today Biocon is at an inflection point and looks set for sustainable long term growthled by its various businesses.
It is sheer endurance that has brought us here. We have stayed the course and believedin our business model. We have successfully managed both failures and risks in a fastchanging world that brings new and disruptive ideas every day. We have constantly raisedthe bar by benchmarking ourselves against the global best. Through a combination of hightechnology talent and a culture rooted in deep science we have proved that as anorganization we have what it takes to make world-class cutting-edge biologics. We areproud of the fact that we have put India among the frontrunners in the global biosimilarsrace. Our ability to endure has ensured the biosimilars business is no longer perceived asa high-risk bet with a low probability of success but a high-value market opportunity.
Finally I would like to thank our esteemed shareholders partners and otherstakeholders for believing in our story and reposing their confidence in our capabilityand extending their support in our long journey of endurance.
Chairperson & Managing Director
June 6 2018