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Biocon (BIOS)
Pharmaceuticals
Fidaxomicin: Implications of approval for Biocon. Optimer received FDA approval
for Dificid (Fidaxomicin) on May 27, 2011. Biocon is the exclusive API supplier for Dificid
for US. Optimer has guided for an August launch; we believe Biocon will start supplying
commercial quantities from 1QFY12E. We await the launch and subsequent build-up in
sales—it is still early to build this prospect into our forecasts. We refrain from building in
explicit forecasts but highlight that this (1) will be a high-margin opportunity for Biocon
as this is an innovative drug with premium pricing and (2) holds the potential to be a
US$50 mn opportunity in sales or EPS of Rs3.4 for Biocon (at Dificid’s peak sales
estimate of US$500 mn). Maintain BUY with a price target of Rs480 (18X FY2013E core
EPS).
Dificid, first drug approved for CDAD (Clostridium difficile-Associated Diarrhea) since 1986
Dificid is Optimer’s first product approval. Since the 1986 launch of ViroPharma’s Vancocin, no
drug has been approved in US until now for CDAD. CDAD is a bacterial infection in the lining of
the gut that can cause severe diarrhea, inflammation of the colon and in some cases death.
Current estimates suggest CDAD affects 700,000 people in US each year, though the incidence
may be significantly higher as many cases are believed to be undiagnosed. CDAD is considered the
leading cause of acquired infection in hospitals and long-term care facilities. Dificid is a superior
drug to (1) Vancomycin (sales of US$280 mn, growing at higher than 20% per annum, gold
standard for CDAD) as it addresses the problem of recurrence which remains a clear unmet need
and (2) other antibiotics in many ways (see inside).
Biocon is the exclusive supplier of API to Optimer for US
In June 2010, Biocon and Optimer entered into a long-term manufacturing and supply agreement
for commercial manufacturing of the API, Fidaxomicin. The key reasons for Biocon being chosen as
a supplier are (1) Biocon was involved in the development and scale-up of the API for the past five
years and (2) the product requires fermentation technology, in which Biocon is a domain expert.
At peak sales, this could translate into a US$50 mn sales opportunity or EPS of Rs3.4 for Biocon
We await the launch and build-up in sales and believe it is early to explicitly build this opportunity
into our forecasts in light of the looming threat of genericisation of Vancomycin. However, we
highlight (1) this will be a high-margin opportunity for Biocon as this is an innovative drug with
premium pricing. Dificid is priced at US$2,800 for a 10-day course versus Vancomycin’s US$1,000-
1,500, (2) according to media reports, peak sales potential is estimated at US$500 mn alone in US.
(1) Assuming gross margin of 80% and API share at 50% of cost of sales (since this is a tablet) at
peak sales, this could translate into a US$50 mn sales opportunity for Biocon, or (2) assuming 30%
PAT margin, this could translate into an EPS of Rs3.4 or share/value of Rs60 (at 18X).
Dificid—superior to the existing drug for CDAD
Dificid is a superior drug to Vancomycin (only other FDA-approved product for the treatment
of CDAD) and other antibiotics, in the following ways:
�� Approximately 30% of patients who initially respond to current treatment experience
clinical recurrence. Dificid has a clear superiority to Vancomycin in sustained clinical cure,
meaning 25 days post treatment there is no resurfacing of the infection. Majority of
patients who experience recurrence after their first episode of CDAD do so within the first
few weeks after treatment.
�� Dificid is dosed as 200 mg tablet, twice a day for 10 days versus Vancomycin’s four 125
mg capsules/day for 10-14 days.
�� Dificid is minimally absorbed, which means it acts locally in the gut, where bacteria
persists and is minimally absorbed into the blood stream.
�� It kills Clostridium in vitro as opposed to other antibiotics that only stop the production of
the bacteria.
Dificid—peak sales estimated at US$500 mn in US, according to media reports;
however, we await build-up in sales before building this opportunity explicitly
�� According to Optimer, CDAD adds significant costs and burden to the US healthcare
system. It is estimated that medical treatment and hospital stays associated with CDAD
cost the US healthcare system as much as US$3.8 bn every year.
�� Since this is Optimer’s first NDA approval, Optimer along with its marketing partner
Cubist Pharmaceuticals plans to make this launch one of the most, if not the most,
impactful in the history of hospital launches in the US.
�� Optimer’s sales force of 100 along with Cubist’s 180 will penetrate up to 2,000 hospitals,
comprising over 90% of US hospital CDAD cases.
�� However, (1) Vancocin (sales of US$280 mn), the current gold standard for CDAD, is not
protected by patents and there is a looming threat of entry of generics, and (2) there are
a number of drugs in clinical trials for CDAD; such as Cubist’s CB-183,315 in phase II and
Viropharma’s VP20621 which has just entered phase II. Therefore, we await a build-up in
sales before building this opportunity explicitly into our forecasts
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Biocon (BIOS)
Pharmaceuticals
Fidaxomicin: Implications of approval for Biocon. Optimer received FDA approval
for Dificid (Fidaxomicin) on May 27, 2011. Biocon is the exclusive API supplier for Dificid
for US. Optimer has guided for an August launch; we believe Biocon will start supplying
commercial quantities from 1QFY12E. We await the launch and subsequent build-up in
sales—it is still early to build this prospect into our forecasts. We refrain from building in
explicit forecasts but highlight that this (1) will be a high-margin opportunity for Biocon
as this is an innovative drug with premium pricing and (2) holds the potential to be a
US$50 mn opportunity in sales or EPS of Rs3.4 for Biocon (at Dificid’s peak sales
estimate of US$500 mn). Maintain BUY with a price target of Rs480 (18X FY2013E core
EPS).
Dificid, first drug approved for CDAD (Clostridium difficile-Associated Diarrhea) since 1986
Dificid is Optimer’s first product approval. Since the 1986 launch of ViroPharma’s Vancocin, no
drug has been approved in US until now for CDAD. CDAD is a bacterial infection in the lining of
the gut that can cause severe diarrhea, inflammation of the colon and in some cases death.
Current estimates suggest CDAD affects 700,000 people in US each year, though the incidence
may be significantly higher as many cases are believed to be undiagnosed. CDAD is considered the
leading cause of acquired infection in hospitals and long-term care facilities. Dificid is a superior
drug to (1) Vancomycin (sales of US$280 mn, growing at higher than 20% per annum, gold
standard for CDAD) as it addresses the problem of recurrence which remains a clear unmet need
and (2) other antibiotics in many ways (see inside).
Biocon is the exclusive supplier of API to Optimer for US
In June 2010, Biocon and Optimer entered into a long-term manufacturing and supply agreement
for commercial manufacturing of the API, Fidaxomicin. The key reasons for Biocon being chosen as
a supplier are (1) Biocon was involved in the development and scale-up of the API for the past five
years and (2) the product requires fermentation technology, in which Biocon is a domain expert.
At peak sales, this could translate into a US$50 mn sales opportunity or EPS of Rs3.4 for Biocon
We await the launch and build-up in sales and believe it is early to explicitly build this opportunity
into our forecasts in light of the looming threat of genericisation of Vancomycin. However, we
highlight (1) this will be a high-margin opportunity for Biocon as this is an innovative drug with
premium pricing. Dificid is priced at US$2,800 for a 10-day course versus Vancomycin’s US$1,000-
1,500, (2) according to media reports, peak sales potential is estimated at US$500 mn alone in US.
(1) Assuming gross margin of 80% and API share at 50% of cost of sales (since this is a tablet) at
peak sales, this could translate into a US$50 mn sales opportunity for Biocon, or (2) assuming 30%
PAT margin, this could translate into an EPS of Rs3.4 or share/value of Rs60 (at 18X).
Dificid—superior to the existing drug for CDAD
Dificid is a superior drug to Vancomycin (only other FDA-approved product for the treatment
of CDAD) and other antibiotics, in the following ways:
�� Approximately 30% of patients who initially respond to current treatment experience
clinical recurrence. Dificid has a clear superiority to Vancomycin in sustained clinical cure,
meaning 25 days post treatment there is no resurfacing of the infection. Majority of
patients who experience recurrence after their first episode of CDAD do so within the first
few weeks after treatment.
�� Dificid is dosed as 200 mg tablet, twice a day for 10 days versus Vancomycin’s four 125
mg capsules/day for 10-14 days.
�� Dificid is minimally absorbed, which means it acts locally in the gut, where bacteria
persists and is minimally absorbed into the blood stream.
�� It kills Clostridium in vitro as opposed to other antibiotics that only stop the production of
the bacteria.
Dificid—peak sales estimated at US$500 mn in US, according to media reports;
however, we await build-up in sales before building this opportunity explicitly
�� According to Optimer, CDAD adds significant costs and burden to the US healthcare
system. It is estimated that medical treatment and hospital stays associated with CDAD
cost the US healthcare system as much as US$3.8 bn every year.
�� Since this is Optimer’s first NDA approval, Optimer along with its marketing partner
Cubist Pharmaceuticals plans to make this launch one of the most, if not the most,
impactful in the history of hospital launches in the US.
�� Optimer’s sales force of 100 along with Cubist’s 180 will penetrate up to 2,000 hospitals,
comprising over 90% of US hospital CDAD cases.
�� However, (1) Vancocin (sales of US$280 mn), the current gold standard for CDAD, is not
protected by patents and there is a looming threat of entry of generics, and (2) there are
a number of drugs in clinical trials for CDAD; such as Cubist’s CB-183,315 in phase II and
Viropharma’s VP20621 which has just entered phase II. Therefore, we await a build-up in
sales before building this opportunity explicitly into our forecasts
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