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Biocon (BIOS)
Pharmaceuticals
Licensing fees boost PAT but growth intact. While PAT was boosted by higher
licensing income, we believe base business growth is intact as (1) sales exAxicorp/licensing income, up 21% yoy, was 4% higher than our est. and (2) EBITDA
margin ex-R&D/l. income at 22.5% was up 50 bps yoy. (1) Base business ex-Axicorp, l.
income was up 18/21% in 9M/3QFY11, (2) high-margin research sales were up 14%
from 7% in 2QFY11 and (3) higher R&D expenses being compensated via l. income
reassures us of 24/14% EPS growth in FY2012-13E. We maintain ADD with PT revised
to Rs445 (was Rs470) with FY2012E EPS revised down by 7% due to higher tax rate. (1)
Oral insulin outlicensing, (2) phase IIII clinical data for T1h and (3) Pfizer insulin launch in
FY2012E which will result in upside for Biocon are key stock triggers in FY2012E.
Sales ex-licensing income, Axicorp up 21% yoy, 4% higher than our estimate
Sales excluding licensing income was 10% lower than our estimate due to (1) lower Axicorp sales
which dipped 16% yoy due to mandatory price cuts in Germany while (2) research revenues at
US$18 mn were in line with our est. and (3) biopharma sales ex-Axicorp was 5% higher than our
est. Total sales ex-Axicorp, licensing income grew 21/18% yoy in 3Q/9MFY11 and give us
confidence in (1) performance of base business and (2) resumption of growth in contract research.
PAT at Rs1 bn was 20% higher than our est. of Rs835 mn due to l. income of US$17 mn
With higher-than-expected licensing income of US$17 mn vs our est. of US$4 mn and higher net
R&D expense of Rs550 mn (net of Rs180 mn of reimbursement while Rs300-350 mn was due to
expensing earlier spend), we look at EBITDA margin ex-R&D/l. income, which was at 22.5%, up 50
bps yoy. Below-EBITDA line items were largely in line.
We decrease FY2012E EPS by 7%, due to higher tax rate, include l. fees of US$50 mn
We decrease our FY2012E est. by 7% due to higher tax rate of 20% vs 15% earlier. We increase
FY2012E licensing income to US$50 mn vs earlier est. of US$27 mn on account of (1) US$10 mn
from Mylan deal as reported in FY2010 and (2) US$40 mn from Pfizer. With (1) base business exAxicorp, l. income up 18/21% in 9M/3QFY11, (2) pick-up in research sales up 14% yoy from 7%
in 2QFY11 and (3) higher yoy R&D expenses being compensated through licensing income, we
estimate EPS of Rs23 in FY2012E and Rs26 in FY2013E.
We maintain ADD with PT revised to Rs445 (from Rs470)
We maintain ADD with PT revised to Rs445 (from Rs470). Biocon expects to outlicense IN105 in
the next 4-6 months and we expect Biocon to benefit from payments linked to Pfizer’s launch of
insulin starting FY2012E in emerging markets, including India.
With higher licensing income and dip in Axicorp sales, 18% YTD growth in sales
ex-Axicorp/licensing income assures us that base business performance is intact
We estimate 16% sales CAGR over FY2011-13E in sales ex-Axicorp/licensing income,
compared to 26% reported in FY2010, 18% in 9MFY11 and 21% in 3QFY11.
Biocon’s total revenue ex-Axicorp, licensing income grew 24%, 11%, 21% in 1Q-
3QFY11. We believe biopharma sales ex-Axicorp will continue to report yoy growth
driven by
` Higher immunosuppressant sales. Biocon is supplying tacrolimus API to 4 customers in US
and one customer is awaiting approval. Biocon is also developing more products in
immunosuppresants category, out of which one has been filed and two are under
development.
` Biocon will participate in generic Atorvastatin opportunity emerging in end-2011E.
` Pick-up in high-margin research services business which was up 14% yoy from 7%
growth reported in 2QFY11.
Sales ex-licensing income, Axicorp up 21% yoy, 4% higher than our estimate
` Axicorp sales dipped 16% yoy largely due to the 16% price cuts mandated by German
govt. This run rate is expected to continue over foreseeable future.
` Licensing income at Rs768 mn was higher than our estimate of Rs180 mn. We believe the
licensing income was due to (1) milestone-based income of US$5 mn from Mylan as
products have moved into clinicals and (2) part of the milestone income of US$100 mn
received from Pfizer with balance shown in current liabilities.
` Biopharma sales excluding Axicorp/l. income at Rs4.3 bn was up 21% yoy, 4% higher
than our estimate. We believe this was on account of increase in sales of Tacrolimus in
the US. Biocon expects sales momentum to continue as it expects one more partner to
gain approval in the near term.
` India branded finished dosage continues to maintain its high growth, with 32% yoy
growth in 3QFY11 vs 28% in 1QFY11 and 32% in 2QFY11, after reporting growth of
36% in FY2010. Biocon launched two new divisions in 9MFY11—Comprehensive Care
and Dermatology.
` Research services at Rs788 mn was up 14% yoy and flat qoq, in line with our estimate.
This was primarily due to strategy of staying away from commoditized research business
or the fee-for-service business, thereby getting into higher-value added research services
business. Biocon expects Syngene to return to its historical profitability level of 33%
EBITDA margin in 2HFY12E driven by (1) operating leverage benefits of capacity utilization
and (2) benefits of new strategy translating into better profitability.
Key takeaways from conference call
` With increased R&D spend, BIOS expects net R&D spend to ramp up to Rs1.6-1.8 bn in
FY2012-13E.
` BIOS’ second novel molecule for Psoriasis (T1h) is undergoing phase III trials in India with
clinical data expected in 1QFY12E.
` Phase III trials for Biocon’s biosimilar version of insulin are underway in Europe.
Recruitment of patients is on. Biocon expects the trial duration to be around 12 months
from start, post which regulatory approvals etc. will take another year. Biocon expects to
file for marketing approval in mid-2012E and expects to launch, upon approval, in 2013E
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Biocon (BIOS)
Pharmaceuticals
Licensing fees boost PAT but growth intact. While PAT was boosted by higher
licensing income, we believe base business growth is intact as (1) sales exAxicorp/licensing income, up 21% yoy, was 4% higher than our est. and (2) EBITDA
margin ex-R&D/l. income at 22.5% was up 50 bps yoy. (1) Base business ex-Axicorp, l.
income was up 18/21% in 9M/3QFY11, (2) high-margin research sales were up 14%
from 7% in 2QFY11 and (3) higher R&D expenses being compensated via l. income
reassures us of 24/14% EPS growth in FY2012-13E. We maintain ADD with PT revised
to Rs445 (was Rs470) with FY2012E EPS revised down by 7% due to higher tax rate. (1)
Oral insulin outlicensing, (2) phase IIII clinical data for T1h and (3) Pfizer insulin launch in
FY2012E which will result in upside for Biocon are key stock triggers in FY2012E.
Sales ex-licensing income, Axicorp up 21% yoy, 4% higher than our estimate
Sales excluding licensing income was 10% lower than our estimate due to (1) lower Axicorp sales
which dipped 16% yoy due to mandatory price cuts in Germany while (2) research revenues at
US$18 mn were in line with our est. and (3) biopharma sales ex-Axicorp was 5% higher than our
est. Total sales ex-Axicorp, licensing income grew 21/18% yoy in 3Q/9MFY11 and give us
confidence in (1) performance of base business and (2) resumption of growth in contract research.
PAT at Rs1 bn was 20% higher than our est. of Rs835 mn due to l. income of US$17 mn
With higher-than-expected licensing income of US$17 mn vs our est. of US$4 mn and higher net
R&D expense of Rs550 mn (net of Rs180 mn of reimbursement while Rs300-350 mn was due to
expensing earlier spend), we look at EBITDA margin ex-R&D/l. income, which was at 22.5%, up 50
bps yoy. Below-EBITDA line items were largely in line.
We decrease FY2012E EPS by 7%, due to higher tax rate, include l. fees of US$50 mn
We decrease our FY2012E est. by 7% due to higher tax rate of 20% vs 15% earlier. We increase
FY2012E licensing income to US$50 mn vs earlier est. of US$27 mn on account of (1) US$10 mn
from Mylan deal as reported in FY2010 and (2) US$40 mn from Pfizer. With (1) base business exAxicorp, l. income up 18/21% in 9M/3QFY11, (2) pick-up in research sales up 14% yoy from 7%
in 2QFY11 and (3) higher yoy R&D expenses being compensated through licensing income, we
estimate EPS of Rs23 in FY2012E and Rs26 in FY2013E.
We maintain ADD with PT revised to Rs445 (from Rs470)
We maintain ADD with PT revised to Rs445 (from Rs470). Biocon expects to outlicense IN105 in
the next 4-6 months and we expect Biocon to benefit from payments linked to Pfizer’s launch of
insulin starting FY2012E in emerging markets, including India.
With higher licensing income and dip in Axicorp sales, 18% YTD growth in sales
ex-Axicorp/licensing income assures us that base business performance is intact
We estimate 16% sales CAGR over FY2011-13E in sales ex-Axicorp/licensing income,
compared to 26% reported in FY2010, 18% in 9MFY11 and 21% in 3QFY11.
Biocon’s total revenue ex-Axicorp, licensing income grew 24%, 11%, 21% in 1Q-
3QFY11. We believe biopharma sales ex-Axicorp will continue to report yoy growth
driven by
` Higher immunosuppressant sales. Biocon is supplying tacrolimus API to 4 customers in US
and one customer is awaiting approval. Biocon is also developing more products in
immunosuppresants category, out of which one has been filed and two are under
development.
` Biocon will participate in generic Atorvastatin opportunity emerging in end-2011E.
` Pick-up in high-margin research services business which was up 14% yoy from 7%
growth reported in 2QFY11.
Sales ex-licensing income, Axicorp up 21% yoy, 4% higher than our estimate
` Axicorp sales dipped 16% yoy largely due to the 16% price cuts mandated by German
govt. This run rate is expected to continue over foreseeable future.
` Licensing income at Rs768 mn was higher than our estimate of Rs180 mn. We believe the
licensing income was due to (1) milestone-based income of US$5 mn from Mylan as
products have moved into clinicals and (2) part of the milestone income of US$100 mn
received from Pfizer with balance shown in current liabilities.
` Biopharma sales excluding Axicorp/l. income at Rs4.3 bn was up 21% yoy, 4% higher
than our estimate. We believe this was on account of increase in sales of Tacrolimus in
the US. Biocon expects sales momentum to continue as it expects one more partner to
gain approval in the near term.
` India branded finished dosage continues to maintain its high growth, with 32% yoy
growth in 3QFY11 vs 28% in 1QFY11 and 32% in 2QFY11, after reporting growth of
36% in FY2010. Biocon launched two new divisions in 9MFY11—Comprehensive Care
and Dermatology.
` Research services at Rs788 mn was up 14% yoy and flat qoq, in line with our estimate.
This was primarily due to strategy of staying away from commoditized research business
or the fee-for-service business, thereby getting into higher-value added research services
business. Biocon expects Syngene to return to its historical profitability level of 33%
EBITDA margin in 2HFY12E driven by (1) operating leverage benefits of capacity utilization
and (2) benefits of new strategy translating into better profitability.
Key takeaways from conference call
` With increased R&D spend, BIOS expects net R&D spend to ramp up to Rs1.6-1.8 bn in
FY2012-13E.
` BIOS’ second novel molecule for Psoriasis (T1h) is undergoing phase III trials in India with
clinical data expected in 1QFY12E.
` Phase III trials for Biocon’s biosimilar version of insulin are underway in Europe.
Recruitment of patients is on. Biocon expects the trial duration to be around 12 months
from start, post which regulatory approvals etc. will take another year. Biocon expects to
file for marketing approval in mid-2012E and expects to launch, upon approval, in 2013E
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