Michelle, thank you very much for joining in and talking to CNBC TV18 on our 26th birthday. I'm going to start the conversation by asking you, give us a memory of when you were 26. What were you doing?
So, first and foremost, I want to wish you a very happy 26th anniversary. I think CNBC has much to be proud of. When I look at myself when I was 26, I was just one year into starting Biocon and I often call myself an accidental entrepreneur. So I was a very inexperienced entrepreneur trying to learn what business was all about and what the biotech opportunities were for me, because I had to pioneer the whole sector; I had nothing to follow. It was a very exciting yet challenging time for me because of course no one took me seriously. I had huge credibility challenges, but that's the name of the game. I think CNBC also must have gone through those early difficult times, and look where you are today, a very serious, highly respected business channel.
Absolutely. When CNBC TV18 began covering Biocon, the entire biotech space was extremely nascent. Did you ever think that the Indian biotech story could be where it is 26 years later?
When you start a sector, you take the first small step, but then everyone has a big dream. It's difficult to predict the size of that dream. But when I look back on the last 47 years, I feel that a lot has changed. I'm very proud that I was able to lead a revolution which today has created a bioeconomy of $185 billion, slated to reach $300 billion by 2030.
Absolutely. Talking about the business now, you have announced that Biocon Biologics will now be a 100% subsidiary of Biocon and that Viatris and Serum are going to own a stake in Biocon. Just tell us the rationale behind the restructuring. Was the holding company discount possibly one of the key reasons for this?
There were two things that swung it in this direction. The first was the holding company discount, and the second was the perceived debt overhang which we acquired because of the acquisition debt. When we acquired the commercial interests of Viatris at Biocon Biologics, it was done with the aim of creating a large global enterprise, a uniquely positioned integrated biosimilars company which we thought would be rewarded because it was the first time it was being attempted in India, and it was the biggest biopharma acquisition ever done, over $3 billion. We were taken aback and very disappointed that we were actually penalized for doing that acquisition; we saw Biocon's stock take a beating. The reasons ascribed were that they were very uncomfortable about the acquisition debt, coupled with the holding company discount, we saw a huge devaluation of the Biocon stock and that lowered the intrinsic value of Biocon Biologics. Our strategy of taking Biocon Biologics public, which anyway made us among the top five biosimilars leaders globally, was not meeting our stated objectives, and we felt it was intrinsically undervalued. With that in mind, we mandated Morgan Stanley to evaluate all the options for value unlocking.
Interesting. You'll have Serum hold around 3-4% stake in Biocon and Viatris around 6-7% stake as well. Give us a sense of the relationship with such strategic shareholders.
When we look at strategic investors like Serum and Viatris, it's about how long they want to hold that shareholding in Biocon. More importantly, the business we are running, which is a biosimilars business, has a force of its own, and I don't think any of the strategic investors will make a big difference to our path ahead. I welcome their presence, but I don't know if it will influence how we are building the biosimilars business. This is an opportunity for us to create a large biopharma enterprise that combines both biosimilars and specialty generics, especially in what I describe as 'diabesity,' because we will be the only company globally to have a portfolio of interchangeable biosimilar insulin analogs complemented with a growing portfolio of GLP-1s, which makes us very uniquely placed.
Absolutely. I'm going to get to the diabesity opportunity in a bit. One speculation that might emerge is that Serum holds a stake, we have Mylan which holds a stake, and there's always been speculation about Biocon's succession plan. Could it be that Serum could increase its stake and approach you for buying out Biocon?
I don't think that's really on the table. People talk about succession planning, and I don't think they should worry about it. We have an excellent management team; Biocon is professionally run. We have an excellent board; board succession has been very well managed. I don't think we need to consider any of the companies you mentioned in a succession plan. At this point, we are very well set up to drive the business in a professional way.
Because of the steps taken, the Biocon promoter shareholding has fallen below 50%. Any plans to hike it back above 50%?
The concept of promoters is fast dissipating. I will continue to be the largest shareholder. At 44%, it's a pretty hefty shareholding. Today, it's about ensuring good governance and being rewarded through performance. I'm just like any other shareholder who wants the company to do well.
You have an enabling resolution to raise around 4,500 crores. Have you thought about which route you'll take, considering you just did a QIP in June?
We were oversubscribed in the QIP, and we will go the QIP route because it's the most elegant way of raising capital. Given the huge interest in the Biocon stock, especially with this announcement, we believe the QIP would be the preferred route.
ASAP. The total amount needed is around 3,600 crores, so the remaining funds from the 4,500 would be used for debt reduction. We will decide the exact number based on how much we raise.
Your net debt is at around $1 billion. What is the timeline and level you are comfortable with?
We are very comfortable even today. We've reduced the debt-to-EBITDA ratio from 4.3x in 2020 to 2.5x now, and we believe next fiscal will bring it below 2. That's a very comfortable and manageable debt for a business of our scale. For the kind of business we are building, a billion-dollar debt is manageable. Going forward, we will be generating free cash flow as we've retired all structured equity debts, which will free up another 300 crores next fiscal. The merger route will also free up more profits from minority interest calculations and related party transactions. We will have a very strong balance sheet through this combined entity.
So this step is a precursor to a possible merger between the two companies. There's a committee already set up evaluating that.
This is a deemed merger because it's a wholly owned subsidiary. The reason it wasn't a merged entity in the past was because we had private equity investors who owned a stake in Biocon Biologics. We created Biocon Biologics in 2008 to ring-fence investments in biosimilars in partnership with Viatris. It's completing that full circle.
What are the operational synergies between Biologics and the generics business, and how will they impact your EBITDA and profitability, especially with the 300 crores in interest savings?
I can't give exact numbers, but there will be synergies in logistics, supply chain, procurement, and commercial activities where Biocon has been partnering with companies. Both businesses are very complementary. Manufacturing of small molecules and biologics are separate, but we have fungible facilities for insulins and GLP-1s, making it very efficient. R&D for small molecules and biosimilars are different, so those labs remain complementary. Quality can be synergized. However, the benefits from synergizing won't be huge because we are a very lean organization to begin with.
