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Biocon (BIOS)
Pharmaceuticals
Growth intact with multiple triggers ahead. YTD underperformance of 16% is
possibly on account of perception of poor 1N 105 clinical data and muted 3QFY11
results. We believe (1) it is too early to write off 1N 105, outlicensing discussions are
underway and when concluded will result in validation of the potential of 1N 105 and
(2) base business performance is intact. We upgrade our rating on the stock to BUY
(from ADD) without any change in estimates or target price (Rs445). Key stock triggers
in FY2012E: (1) Oral insulin outlicensing, (2) Phase IIII clinical data for T1h, (3) Pfizer
insulin launch, and(4) Fidaxomicin US FDA approval in June 2011E.
YTD underperformance of 16% unwarranted
We notice the 16% underperformance is possibly on account of perception of poor 1N 105 clinical
data and muted 3QFY11 results. (1) We believe that it is too early to write off 1N 105 on account
of recently disclosed test results. Outlicensing discussions are underway, although successful
licensing of this asset will be the only validation of the potential of this drug, (2) base business
growth is intact with sales excluding Axicorp and licensing income up 18 % and 21% yoy in 9M
and 3QFY11 while EBITDA margin excluding the higher R&D/licensing income was at 22.5% in
3QFY11, up 50 bps yoy (more inside).
Axicorp – not a major concern as it constitutes only 5% of total EBITDA
Axicorp sales were down 17% qoq to Euro 35 mn in 3QFY11 on account of mandatory price cuts
in Germany. There may be a risk, of sales dipping further, but we note that at the above level of
sales and with 5% EBITDA margin, Axicorp constitutes only 5% of our total FY2012E EBITDA. A
further 20% drop in Axicorp sales will lead to FY2012E EPS decline of only 1.2%, according to our
estimates.
Fidaxomicin PDUFA date is 30 May 2011, Biocon is exclusive API supplier to Optimer for US
US FDA recently accepted Optimer’s NDA for its novel drug- Fidaxomicin with PDUFA date set as
30 May 2011. Optimer has guided for 2H2011 launch of its drug in US. Biocon is currently the
exclusive API supplier for US only, with a Canadian company as the formulator. Press reports
indicate US$50 mn sales, but we believe this is likely the peak revenue potential from this deal for
Biocon. We await final approval, but believe a timely launch of this drug in the US could provide
upside to our FY2012E estimates. Although this opportunity may be limited in revenue potential in
FY2012E, it is likely to be a high-margin opportunity for Biocon as it is a novel drug and is a tablet
involving high API cost versus Vancomycin (which is an injection).
Base business sales intact in 3QFY11, with margin intact yoy
3QFY11 PAT reached Rs1 bn marked by higher licensing income and higher R&D spend,
however, we believe base business growth is intact and evaluate the results excluding the
above two items (see Exhibit below) We highlight that two factors:
Sales excluding Axicorp (dipped 16% yoy in 3QFY11 due to the mandatory price cuts)
and licensing income was up 18 % and 21% yoy in 9M and 3QFY11 due to higher
biopharma sales which were up 20% yoy in 9MFY11 and despite research services
revenues reporting muted growth of only 11% yoy in 9MFY11
EBITDA margin excluding the higher R&D/licensing income was at 22.5%, up 50 bps yoy
in 3QFY11 with gross margin expanding by 100 bps.
FY2012-13E factors recovery in Syngene; biopharma sales are conservative
We remain conservative and factor in muted growth for Biopharma business in FY2012-13E
on account of looming patent expiry of Atorvastatin and its impact on generic Simvastatin
sales. Statin API supplies account for around 25% of Biocon’s total sales excluding Axicorp
with a majority coming from Simvastatin supplies.
However, we note that Biocon is a participant in the API opportunity for atorvastatin.
According to the company, it has tied up with generic players. However, we await further
clarity before factoring the potential from this opportunity into our estimates
Biocon: Price target, FY2012E
FY2012E
Diluted core EPS 20.8
P/E (X) 17.9
Value per share 374
Cash per share 16
Pfizer deal NPV* 52
Share price target 442
* Only glargine, recombinant
Source: Kotak Institutional Equities estimates, Company
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Biocon (BIOS)
Pharmaceuticals
Growth intact with multiple triggers ahead. YTD underperformance of 16% is
possibly on account of perception of poor 1N 105 clinical data and muted 3QFY11
results. We believe (1) it is too early to write off 1N 105, outlicensing discussions are
underway and when concluded will result in validation of the potential of 1N 105 and
(2) base business performance is intact. We upgrade our rating on the stock to BUY
(from ADD) without any change in estimates or target price (Rs445). Key stock triggers
in FY2012E: (1) Oral insulin outlicensing, (2) Phase IIII clinical data for T1h, (3) Pfizer
insulin launch, and(4) Fidaxomicin US FDA approval in June 2011E.
YTD underperformance of 16% unwarranted
We notice the 16% underperformance is possibly on account of perception of poor 1N 105 clinical
data and muted 3QFY11 results. (1) We believe that it is too early to write off 1N 105 on account
of recently disclosed test results. Outlicensing discussions are underway, although successful
licensing of this asset will be the only validation of the potential of this drug, (2) base business
growth is intact with sales excluding Axicorp and licensing income up 18 % and 21% yoy in 9M
and 3QFY11 while EBITDA margin excluding the higher R&D/licensing income was at 22.5% in
3QFY11, up 50 bps yoy (more inside).
Axicorp – not a major concern as it constitutes only 5% of total EBITDA
Axicorp sales were down 17% qoq to Euro 35 mn in 3QFY11 on account of mandatory price cuts
in Germany. There may be a risk, of sales dipping further, but we note that at the above level of
sales and with 5% EBITDA margin, Axicorp constitutes only 5% of our total FY2012E EBITDA. A
further 20% drop in Axicorp sales will lead to FY2012E EPS decline of only 1.2%, according to our
estimates.
Fidaxomicin PDUFA date is 30 May 2011, Biocon is exclusive API supplier to Optimer for US
US FDA recently accepted Optimer’s NDA for its novel drug- Fidaxomicin with PDUFA date set as
30 May 2011. Optimer has guided for 2H2011 launch of its drug in US. Biocon is currently the
exclusive API supplier for US only, with a Canadian company as the formulator. Press reports
indicate US$50 mn sales, but we believe this is likely the peak revenue potential from this deal for
Biocon. We await final approval, but believe a timely launch of this drug in the US could provide
upside to our FY2012E estimates. Although this opportunity may be limited in revenue potential in
FY2012E, it is likely to be a high-margin opportunity for Biocon as it is a novel drug and is a tablet
involving high API cost versus Vancomycin (which is an injection).
Base business sales intact in 3QFY11, with margin intact yoy
3QFY11 PAT reached Rs1 bn marked by higher licensing income and higher R&D spend,
however, we believe base business growth is intact and evaluate the results excluding the
above two items (see Exhibit below) We highlight that two factors:
Sales excluding Axicorp (dipped 16% yoy in 3QFY11 due to the mandatory price cuts)
and licensing income was up 18 % and 21% yoy in 9M and 3QFY11 due to higher
biopharma sales which were up 20% yoy in 9MFY11 and despite research services
revenues reporting muted growth of only 11% yoy in 9MFY11
EBITDA margin excluding the higher R&D/licensing income was at 22.5%, up 50 bps yoy
in 3QFY11 with gross margin expanding by 100 bps.
FY2012-13E factors recovery in Syngene; biopharma sales are conservative
We remain conservative and factor in muted growth for Biopharma business in FY2012-13E
on account of looming patent expiry of Atorvastatin and its impact on generic Simvastatin
sales. Statin API supplies account for around 25% of Biocon’s total sales excluding Axicorp
with a majority coming from Simvastatin supplies.
However, we note that Biocon is a participant in the API opportunity for atorvastatin.
According to the company, it has tied up with generic players. However, we await further
clarity before factoring the potential from this opportunity into our estimates
Biocon: Price target, FY2012E
FY2012E
Diluted core EPS 20.8
P/E (X) 17.9
Value per share 374
Cash per share 16
Pfizer deal NPV* 52
Share price target 442
* Only glargine, recombinant
Source: Kotak Institutional Equities estimates, Company
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