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Biocon Ltd.
Annual report takeaways
„Focus on long term drivers
With divestment of Axicorp, we expect Biocon to build on its existing core revenue
streams viz. Research services, API supplies and branded formulations as nearterm growth drivers. While developed market supplies for biosimilar insulin is likely
to commence from 2014, near term costs on product development and capacity
expansion would weigh on profitability. Maintain Neutral on limited upside
catalysts and modest 16% EPS CAGR (FY11-13E).
Strengthening position in domestic formulations
Success in diabetology (insulin, oral anti-diabetics) and oncology (novel products)
have enabled Biocon to establish strong brand equity in competitive domestic
formulations market. Aggressive new launches backed by fieldforce of ~1000
would achieve target sales of Rs5bn in FY15E from this segment (vs Rs1.8bn in
FY11, 11% of sales), implying 29% CAGR.
Global partnerships to benefit over medium term
(a) RoW supplies for biosimilar insulin under Pfizer deal to start from FY12 end.
US/EU market supplies to commence from 2014 with US$161mn planned capex
spend in Malaysian facility (b) API supplies for Fidaxomycin (Optimer, novel
product) to commence from FY12E, peak sales potential of ~US$50mn for Biocon
(c) Animal studies (in EU) for one mono-clonal antibody target for Mylan deal
ongoing, 3 other projects under development.
NCE upside unlikely in near term; Awaiting upside catalysts
We do not foresee near term licensing deal for IN-105 (oral insulin) post weak
initial data (HbA1c lowering effect) while Phase III trial data for anti-CD6 Mab
(T1h) is still awaited to trigger value unlocking from NCE pipeline. We find current
valuations factor most positives and await further upside catalysts.
Key takeaways from Annual Report
Biocon management remains confident on long term strategic drivers for the
company. While domestic formulations and Biosimilar insulin appear to be
focus areas for the companies, other businesses are also shaping up well.
Biocon outlays capex plans of over US$250mn to be spent in next 3 years, with
majority going towards building biosimilar insulin capacities in Malaysia
(US$161mn capex spend).
API supplies to focus on building portfolio
Strength in statins and immunosuppressants in small molecule API space
have helped Biocon register 5-yr CAGR of 24% in this segment, accounting
for ~75% of sales. With upcoming large opportunities in statin space in the
form of atorvastatin, rosuvastatin patent expiration, Biocon would sustain
healthy growth in this area (statin sales grew 13% in FY11). Moreover,
expanding portfolio to include prostaglandins and peptides, the company
would further expand its target area.
In the large molecule space, insulin (both human and analogs) and mono-clonal
antibodies (MAb’s) would remain the focus areas and the company intends to
target both biosimilars as well as novel launches (building on partnership model).
Partnership approach to long term success
Biocon has successfully entered into strategic partnerships with global companies
to leverage on its competencies in the biotechnology space. While Pfizer and
Mylan deals appear to be the prominent alliances, other strategic partnerships
like Amylin, Vaccinex, IATRICa, etc can also surprise positively over long term.
Pfizer deal addresses large insulin opportunity
Global insulin sales is expected to scale US$20bn by 2020 (from US$15bn
currently), accounting for 46% of diabetes drug sales. Despite entry of biosimilar
insulins (from 2014 onwards), insulin sales is expected to grow at 6% per annum.
Increasing prevalence of diabetes coupled with cost compulsion in regulated
markets make strong case for entry of biosimilars. Further clarity on regulatory
pathways would provide better clarity and visibility for prospective biosimilar
insulin players
„ Expect emerging market sales under Pfizer partnership to commence from
FY12-end, with India sales (co-exclusive) to start in 1HFY12 itself.
„ Regulated markets (US/EU) entry expected from 2014 onwards, subject to
regulatory success. Clinical trials for recombinant human insulin in EU are
underway with analogs to follow soon
Investing in capex for large scale supplies
Biocon plans to spend US$161mn in Malaysian biomanufacturing capacity (at
Bio-XCell). This dedicated insulin manufacturing facility is expected to be
operational by 2014 and is likely to cater to global supplies under Pfizer deal.
Mylan deal to target MAbs
Biocon is working on five biosimilar projects (all mono-clonal antibodies) under
Mylan deal, of which non-clinical studies for one of the products have
commenced in Europe. The company is on track to target key patent expiration
opportunities from 2015 onwards in this space.
Fidaxomycin supplies to contribute in FY12
Commercial API supplies of fidaxomycin (brand Dificid, anti-infective) for Biocon’s
partner Optimer is likely to commence in FY12 itself, following recent USFDA
approval. While peak sales for the product are likely to be achieved over 3-4
years, we expect Biocon to benefit to the extent of US$15-20mn annual supplies
for the product with a high margin over medium term. Biocon expects peak sales
of ~US$50mn for this product.
Research services to undergo transformation
Realizing emerging trends in pharma outsourcing model towards risk sharing and
resource sharing model as well as integrated research services, Biocon has
begun to transform its client offerings under Syngene and Clinigene businesses.
While FTE based model for BMS (with ~450 scientists) likely to sustain for next 3
years growth, integrated end to end solutions to be next driver for research
services business. Research services would account for 19% of Biocon’s
business (ex-Axicorp) in FY12E.
Price objective basis & risk
BIOCON LTD (BCLTF)
Given Biocon's modest growth prospects and limited potential catalysts, we
believe the stock should trade in line with mid-cap peers average multiples. Our
PO of Rs395 is based on 16x FY13E EPS, in line with the mid-cap peers
average. Our target multiple implies a PEG of 1x, at higher end of sector average.
We find our target multiple of 16x justified, noting limited triggers and modest
earnings growth outlook.
Downside risks: (1) Higher-than-expected pricing pressure in statins,
(2) Lower-than-expected pick-up in insulin and immunosuppressant sales to nonregulated/regulated markets, (3) Failure in research, (4) Severance of custom
manufacturing tie-ups, and (5) Regulatory delays.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Biocon Ltd.
Annual report takeaways
„Focus on long term drivers
With divestment of Axicorp, we expect Biocon to build on its existing core revenue
streams viz. Research services, API supplies and branded formulations as nearterm growth drivers. While developed market supplies for biosimilar insulin is likely
to commence from 2014, near term costs on product development and capacity
expansion would weigh on profitability. Maintain Neutral on limited upside
catalysts and modest 16% EPS CAGR (FY11-13E).
Strengthening position in domestic formulations
Success in diabetology (insulin, oral anti-diabetics) and oncology (novel products)
have enabled Biocon to establish strong brand equity in competitive domestic
formulations market. Aggressive new launches backed by fieldforce of ~1000
would achieve target sales of Rs5bn in FY15E from this segment (vs Rs1.8bn in
FY11, 11% of sales), implying 29% CAGR.
Global partnerships to benefit over medium term
(a) RoW supplies for biosimilar insulin under Pfizer deal to start from FY12 end.
US/EU market supplies to commence from 2014 with US$161mn planned capex
spend in Malaysian facility (b) API supplies for Fidaxomycin (Optimer, novel
product) to commence from FY12E, peak sales potential of ~US$50mn for Biocon
(c) Animal studies (in EU) for one mono-clonal antibody target for Mylan deal
ongoing, 3 other projects under development.
NCE upside unlikely in near term; Awaiting upside catalysts
We do not foresee near term licensing deal for IN-105 (oral insulin) post weak
initial data (HbA1c lowering effect) while Phase III trial data for anti-CD6 Mab
(T1h) is still awaited to trigger value unlocking from NCE pipeline. We find current
valuations factor most positives and await further upside catalysts.
Key takeaways from Annual Report
Biocon management remains confident on long term strategic drivers for the
company. While domestic formulations and Biosimilar insulin appear to be
focus areas for the companies, other businesses are also shaping up well.
Biocon outlays capex plans of over US$250mn to be spent in next 3 years, with
majority going towards building biosimilar insulin capacities in Malaysia
(US$161mn capex spend).
API supplies to focus on building portfolio
Strength in statins and immunosuppressants in small molecule API space
have helped Biocon register 5-yr CAGR of 24% in this segment, accounting
for ~75% of sales. With upcoming large opportunities in statin space in the
form of atorvastatin, rosuvastatin patent expiration, Biocon would sustain
healthy growth in this area (statin sales grew 13% in FY11). Moreover,
expanding portfolio to include prostaglandins and peptides, the company
would further expand its target area.
In the large molecule space, insulin (both human and analogs) and mono-clonal
antibodies (MAb’s) would remain the focus areas and the company intends to
target both biosimilars as well as novel launches (building on partnership model).
Partnership approach to long term success
Biocon has successfully entered into strategic partnerships with global companies
to leverage on its competencies in the biotechnology space. While Pfizer and
Mylan deals appear to be the prominent alliances, other strategic partnerships
like Amylin, Vaccinex, IATRICa, etc can also surprise positively over long term.
Pfizer deal addresses large insulin opportunity
Global insulin sales is expected to scale US$20bn by 2020 (from US$15bn
currently), accounting for 46% of diabetes drug sales. Despite entry of biosimilar
insulins (from 2014 onwards), insulin sales is expected to grow at 6% per annum.
Increasing prevalence of diabetes coupled with cost compulsion in regulated
markets make strong case for entry of biosimilars. Further clarity on regulatory
pathways would provide better clarity and visibility for prospective biosimilar
insulin players
„ Expect emerging market sales under Pfizer partnership to commence from
FY12-end, with India sales (co-exclusive) to start in 1HFY12 itself.
„ Regulated markets (US/EU) entry expected from 2014 onwards, subject to
regulatory success. Clinical trials for recombinant human insulin in EU are
underway with analogs to follow soon
Investing in capex for large scale supplies
Biocon plans to spend US$161mn in Malaysian biomanufacturing capacity (at
Bio-XCell). This dedicated insulin manufacturing facility is expected to be
operational by 2014 and is likely to cater to global supplies under Pfizer deal.
Mylan deal to target MAbs
Biocon is working on five biosimilar projects (all mono-clonal antibodies) under
Mylan deal, of which non-clinical studies for one of the products have
commenced in Europe. The company is on track to target key patent expiration
opportunities from 2015 onwards in this space.
Fidaxomycin supplies to contribute in FY12
Commercial API supplies of fidaxomycin (brand Dificid, anti-infective) for Biocon’s
partner Optimer is likely to commence in FY12 itself, following recent USFDA
approval. While peak sales for the product are likely to be achieved over 3-4
years, we expect Biocon to benefit to the extent of US$15-20mn annual supplies
for the product with a high margin over medium term. Biocon expects peak sales
of ~US$50mn for this product.
Research services to undergo transformation
Realizing emerging trends in pharma outsourcing model towards risk sharing and
resource sharing model as well as integrated research services, Biocon has
begun to transform its client offerings under Syngene and Clinigene businesses.
While FTE based model for BMS (with ~450 scientists) likely to sustain for next 3
years growth, integrated end to end solutions to be next driver for research
services business. Research services would account for 19% of Biocon’s
business (ex-Axicorp) in FY12E.
Price objective basis & risk
BIOCON LTD (BCLTF)
Given Biocon's modest growth prospects and limited potential catalysts, we
believe the stock should trade in line with mid-cap peers average multiples. Our
PO of Rs395 is based on 16x FY13E EPS, in line with the mid-cap peers
average. Our target multiple implies a PEG of 1x, at higher end of sector average.
We find our target multiple of 16x justified, noting limited triggers and modest
earnings growth outlook.
Downside risks: (1) Higher-than-expected pricing pressure in statins,
(2) Lower-than-expected pick-up in insulin and immunosuppressant sales to nonregulated/regulated markets, (3) Failure in research, (4) Severance of custom
manufacturing tie-ups, and (5) Regulatory delays.
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