Biocon believes it is a highly undervalued company because neither the investors nor analysts understand its business. In an interview with Business Line , the company’s Chairman and Managing Director, Kiran Mazumdar Shaw, talks about the need for higher R&D spend and how Syngene is the next big bet for the company.

So, the Pfizer deal is history now, isn’t it?

Post-Pfizer, it has basically opened up market opportunities for us. Our insulin business has grown substantially over the last few years. We are focused on expanding some of our existing markets through our existing partners. Brazil is an important market and so is South-East Asia, Eastern Europe like Thailand. In the interim, we have got good positive interim data for our phase three European clinical trials, and that I think that kind of paves the way for us to get ready for market authorisation in Europe.

So, will you be looking at more partners in Europe?

We have not yet decided if we should take multiple partners in Europe. It is a federated market out there. There are different companies and different countries there. In the US, we plan to take on partners. But we are still in the process of evaluating the market for our products, because we are getting close to applying for market authorisation.

Can you tell us more about GE Capital investing in Syngene? The valuation benchmark is something you should be happy about.

The way I look at is that the first and foremost the group valuation we have today is just about a billion dollars which we believe is very undervalued. We do not believe that we really have realised the true value of Syngene. Therefore, we are kind of discussing this equity option. Once we opened up, there were a number of companies and investors who wanted a stake in Syngene. We opted for GE Capital because it went beyond equity. It brought vale-added innovative technologies which then Syngene could avail of to add greater value to its customers.

We are happy with the valuation of $300 million for Syngene, but we still believe Biocon is valued so low.

Are you looking at an overseas listing for Syngene?

Sure, we will look at overseas listing as well.

We understand China is posing a threat for companies like yours?

We really think China is not a serious threat to our business. China could be a threat for small molecule generic kind of business, but not to our kind of business. We are certainly ahead of companies in Asia. The only threat from China is for cheaper source of products. And I think that is again getting addressed. China is realising they need to increase prices. The Chinese currency is also not something that can be sustained at these levels. There has been a lot of debate on the amount of R&D spend of your company

I think if you benchmark us with generic companies, then one does think it is high. But that is not the right kind of comparison. Generic companies have very low levels of R&D investment for their products to come to the market. The timelines are shorter and to develop a generic molecule, it just takes a couple of years. In our case, the minimum period of time is 10 years. Also, they don’t have to do clinical trials, whereas in bio similars, you have to do a lot of clinical trials. Increasing R&D spend should be looked at as a positive indicator.

With increasing R&D spend, will you need more funds?

No. we don’t need external funding. We are self-financing our R&D spend which is a strong indicator that Biocon business model is robust. People have not understood what this business is all about. They are used to plain vanilla generic model. Despite increasing costs everywhere, we are still able to show growth. Analysts have to failed to recognise this.

So, what is the kind of cash you are sitting on?

It is about Rs 625 crore. Therefore, we don’t need to borrow. Biocon is a unique business. Somehow, investors what to see highly leveraged for some reason. We are a zero debt company. But the investors want to see us highly leveraged and make acquisitions. We want to know what is the return on these acquisitions. Nobody has got u look at every pharma company here and they have had to sell off some of their businesses. Even today, they are highly leveraged.

We, as a company, have deliberately chosen to play safe and we want to grow slowly. Let us not be in a hurry and expand this business. Once we get the scale and size and then we can look at aggressive strategies.

So, obviously, you feel your stock is undervalued.

We have not been rewarded for our good strategies we have exercised. Believe me, if we had taken Syngene to the market, we would not have got the valuation it deserved. If you take a company then it should get higher valuation. If the base valuation is Rs 1,624 crore for Syngene, then if we take it to the market it should be about Rs 2,500 crore, which is about $500 million. Then you are saying that the entire Biocon is just $1 billion? It is a crazy valuation. Companies with much worse matrix get double valuation.

> giriprkash.k@thehindu.co.in

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