Biocon: rising rupee to hit margins

BANGALORE (Reuters) - Biocon Ltd (BION.BO), India's top biotechnology firm, expects margins to be hurt by the stronger rupee for at least another six to nine months, its Chairman and Managing Director Kiran Mazumdar-Shaw said.

"Times are tough," Mazumdar-Shaw said, speaking at the Reuters India Investment Summit in Bangalore on Thursday. "It is an absolute concern for us because certainly it means that our margins will shrink."

Mazumdar-Shaw said more than half of Biocon's revenue is in U.S. dollars. The rising rupee hit a near-decade high of 39.16 against the dollar in November.

Biocon expects revenue growth to be driven by biosimilars, copies of biotechnology drugs, and branded drugs as its revenue is pressured by lower pricing and increasing competition that is hurting its profitable cholesterol-lowering statins business.

"We believe that focusing on biosimilars will probably allow us to enjoy at least slightly better margins," Mazumdar-Shaw said. She also said the company is increasing its focus on Europe and Japan to offset the rising rupee.

The bulk of Biocon's revenue, about 75 percent, comes from its biopharmaceuticals unit, under which it sells branded and generic drugs. Contract research services currently contribute around a fourth of revenue.

Biocon's revenue has been below analysts' average estimates for the last two quarters, and for the third quarter analysts expect revenue of 2.87 billion Indian rupees ($72.93 million), according to Reuters Estimates.

FOCUS ON INSULIN

Biocon is also increasing focus on its product pipeline, which includes its oral insulin pill that Mazumdar-Shaw said might be launched in India by 2010.

The company plans to spend 1 billion rupees on research and development in fiscal year ending March 2008, and expects to hike this by at least 20 percent to 30 percent annually, she said.

The Bangalore-based company is also eyeing large research services contracts as global drug makers look for ways to cut costs for developing new molecules.

Analysts say pharmaceutical research could be done in India at about one-fourth of the cost in the United States, mainly due to the availability of a large pool of cheaper talent.

"Every pharma company today is beginning to look at itself as a marketing and distribution company, and that everything else should sort of be outsourced," Mazumdar-Shaw said.

SEEKS EUROPEAN ACQUISITION

Mazumdar-Shaw, who established Biocon in her garage in a Bangalore neighborhood in 1978, said the company may buy a European firm to boost its presence in that market as it plans to launch its injectible insulin product there.

"In the long term, we would like to use that to build up marketing and distribution capabilities for many of our other products," she said.

The company already sells its insulin product in Latin America, the Middle East and South East Asia.

Mazumdar-Shaw said Biocon is also looking to buy research services companies in China and Eastern Europe.

Biocon hopes to buy a company by its fiscal year ending March 2008, to boost its business in overseas markets.

(Additional reporting by Niveditha Ravi and Pratish Narayanan; Editing by Bernard Orr)