Viatris deal gives Biocon Biologics entry in 100 countries: Shreehas Tambe

In a Q&A, the recently named MD & CEO of Biocon Biologics dwells on the scope for an IPO or stake sale to PE investors to retire the debt taken to fund the acquisition

With Shreehas Tambe having taken over as MD & CEO of Biocon Biologics, after starting as a management trainee in the company back in 1997, the company is working to integrate the Viatris deal it recently struck. Speaking to Sohini Das, the new boss at the company dwells on Biocon Biologics' openness to having an IPO or a stake sale to PE investors to retire the debt taken to fund the deal. Edited excerpts:

You've spent nearly three decades in Biocon. What is your vision now that you are at the helm?

I joined Biocon in 1997. It has been 25 years since I joined the company as a management trainee. Back then, I had joined research and development, and have worked in several roles since. There is so much more to do. During the past four decades since Kiran founded Biocon, we have seen one growth driver every decade, each one of which has catapulted us to a new orbit. We were an enzymes company to begin with. From there we moved on to small molecules, then to insulins, and then to monoclonal biosimilars, and now we have novel molecules.

So would you say the Viatris deal is an inflection point?

This is clearly a pivotal moment. We were partners with Viatris for over a decade. We had complementary capabilities – Biocon was known for its science, manufacturing, quality systems and Viatris was known for its capabilities in regulatory sciences in advanced markets and its commercial capabilities. Since we closed the deal on November 29, Biocon now books the full revenues and profits of the biologics business that Viatris was booking earlier. We were taking 35-40 per cent of the topline and 28 per cent of the profits earlier (under the previous arrangement); now we get 100 per cent of both--clearly, a much stronger P&L. It makes us a more integrated company and brings us products for which we have not partnered. Now we have a commercial presence in over 100 countries as a result of this acquisition, and this brings us closer to the patients than ever before.

How does this deal benefit the patients?

We can now have the best cost efficiencies. Affordability means that we can take a high quality product to the market and make it accessible to patients. The company now has all capabilities to bring products to the market faster – decision making is faster, capital allocation is faster. It is also not an acquisition of rationalisation – no one loses jobs. We now have more people on board. We were looking at someone else to commercialise a product after we developed it. As a combined entity, since we can now commercialise products, we can also in-license products and commercialise them faster.

There are talks of IPOs and even stake sales to PEs to retire the debt taken to fund the deal. Could you elaborate?  

The way we have done the Viatris transaction is that it is a $2 billion cash upfront payment and a billion dollars in stock. On the $2 billion dollar upfront payment, about $1.2 billion was debt, and $800 million was equity. This $800 million is broken up into $650 million as Biocon and $150 million as Serum Institute. Of this $650 million, around $230 million comes from existing reserves, and the remaining $420 million through mezzanine finance. We'd like to close the mezzanine finance first through the interest that we see from investors in Biocon Biologics. Post that, we will explore the options available to Biocon Ltd to retire debt -– whether through Syngene stock sale, or an equity investment from PEs, or an initial public offering. There is a lot of interest in investing in Biocon Biologics and the kind of valuation we get will be critical.

The deal with Serum Institute is also effective from the third quarter. What are its future prospects?

Biocon Biologics did a transaction with Serum Institute Life Sciences that took effect on October 1 this year. We have an assured top line and bottomline on an annualised basis. We have access to 100 million doses, and at a floor price of $3 per dose, we have an assured topline of $300 million. At an Ebitda level, that works out to $100 million annually. In FY23 this would accrue on a pro-rata basis.

When we did the Serum transaction, the Viatris deal was not on the horizon. Now a lot of our focus is on integrating Viatris. But the Serum transaction makes a lot of strategic sense for us. Our portfolio is in the non-communicable diseases space, nothing in the communicable disease space. We were keen to make an investment in this space. Had we gone organically it would have taken us a while, and so we thought of partnering with the world’s largest vaccine maker by volume. Our partnership is not just for Covid-19 vaccines, but also non-Covid-19 products. We didn't want a big capital investment to be made – we will develop new products, use Serum's manufacturing capacities, and this is how the model will work. The future pipeline could be in vaccines or in biosimilars.

What are the plans for the India market?

India is our home market. We always look to bring products here. Our first human insulin was launched here in 2004. It has been a very important market for us, and we look to be a bit more successful here in the therapy areas we are present than we have been globally. We have got a new leadership team, and are making investments here. We have begun seeing green shoots in the oncology space here.