Biocon gears up for US generics push

Bengaluru: India’s largest biotechnology company, Biocon Ltd, is planning to make a push into niche areas of the US generic drug market to tap existing resources better and make extra money while it awaits bigger rewards from its huge bet on biosimilars down the road.

Generic drugs are cheaper but exact replicas of branded chemical drugs. On the other hand, biosimilars, or copycat versions of biotech drugs, are harder and more expensive to develop as biotech drugs are made from living cells and cannot be identically replicated. Also, unlike generics, biosimilars are yet to take off in developed markets.

“Dr Reddy’s Ltd and Biocon Ltd are the only two companies which are going big with biosimilars now. They want the research to be done in a calibrated way such that they show growth year on year and also increase spend on R&D (research and development). For Biocon, ramping up the Abbreviated New Drug Applications (ANDAs) side-by-side is a piggyback where they can incrementally and directly participate in the market. They are being opportunistic as a short-term measure but this can gain scale easily,” said Hemant Bakhru of UBS.

To be sure, making a generics push is not a bold move for a firm that already sells active pharmaceutical ingredients (the key substances that lend drugs their healing property) to pharma firms abroad. But it could help Biocon’s bottom line as companies typically make 20-30% higher margins on generic drugs than what they make on APIs sold outside India.

“Many companies do progress from making APIs to contract manufacturing to generics as and when they realize they have the right manpower and abilities to do so. Biocon may also look to join hands with channel partners for sale of generics in the US or Europe as marketing on their own would again need money,” said an analyst, who declined to be named as he is not authorized to talk to the media.

The Bengaluru-based drug maker, which has seen lacklustre growth in its biopharmaceuticals business and is waiting for developed markets to embrace biosimilars, has been planning to sell generics for more than two years and filed its first set of related applications to overseas health regulators last year. It can expect to sell these drugs only after 18-20 months as ANDAs take roughly at least two years to get approved by the US Food and Drug Administration.

“This will be a fallback mechanism for Biocon as they have burnt a lot of money on biosimilars research, and the bioequivalence and bioavailability (acceptability of a drug with patients biologically) studies are not established yet. The company has perhaps now realized that they cannot keep burning money into research and need a stable stream of revenue as well,” said the analyst cited earlier.

Biocon looks at the move differently and as more of an attempt to move up the value chain. “The company’s focus on differentiated APIs leveraging its core strengths in fermentation and complex molecules has helped build leadership positions in portfolios like the statins and immunosuppressants. While we continue to expand our portfolio of APIs, our foray into the generic formulations segment will help us move up the value chain by forward integrating our API business and help us capture a larger piece of the overall value,” said Arun Chandavarkar, chief executive and joint managing director of Biocon.

The firm set up a subsidiary, Biocon Pharma Ltd, this year to make it easier for it to file ANDAs and also make it simpler to distinguish the businesses. Under this entity, Biocon will also set up a manufacturing facility in Bengaluru, the details of which were not disclosed.

“The small molecule business comprising of both generic formulations and third-party API sales is targeted to be about 30% of our group revenues of approximately $1 billion in 2018,” Chandavarkar said.

The $1 billion revenue target will also be buoyed by biosimilars (20%), branded formulations (20%), research services (20%) and novel molecules (5%).

Biocon’s torch-bearers going forward will be biosimilars, branded formulations and generics, said Siddhant Khandekar, assistant vice-president of research, ICICI Direct.