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Biocon Ltd
Disappointing Quarter; EW
Quick comment – Below-expectation quarter: Muted
sales growth of 10% and lower licensing income led to
an unimpressive 7% rise YoY (ex Axicorp) in net profit to
Rs700mn (MSe Rs969mn). Excluding licensing income,
the company reported Rs660mn in net profit (our
estimate Rs711mn). Per management, disruption in the
Middle East and lower licensing income were the key
reasons for the disappointment.
Update on key drivers: Pfizer deal – The company
targets to launch reusable pen device and two products
(insulin and glargine) in India as part of the deal in
F2Q12. It targets to launch insulin in the EU in 2013.
Mylan deal – BIOS has identified five products for
development, and progress is on track. It did not provide
launch timelines, but did indicate that regulated market
opportunity is a few years away. Fidaxomicin – BIOS
has started supplying fidaxomicin to Optimer and is the
sole API supplier. It expects this to be a high-margin
opportunity.
Other highlights: It targets to expand its field force in
the domestic market to 1,500 (from 1,120 now). Biocon
is targeting to list (IPO) its research services business in
the next 18-24 months. It expects licensing income to
be lumpy on a quarterly basis, since revenue recognition
is driven by development and regulatory milestones, but
expects the income to recur (at F2011 level) on a full-
year basis.
Outlook for F2012: Management expects: 1) growth
momentum to continue, driven by fidaxomicin, branded
formulations, insulin (Pfizer deal), emerging markets,
and research services; and 2) EBIDTA margin to sustain
at current levels of 29%. Statins business is likely to
remain stable. R&D expense is expected to rise to
8-10% of revenue. Capex to be in the Rs1.5bn range (ex
Malaysia facility).
We retain our EW rating in view of limited depth in the
near-term product pipeline and distant (three-years plus)
monetization time frame for insulin/MAbs in the
regulated markets.
Key highlights from the earnings call:
• Outlook: Management expects
o Growth momentum to continue in F2012, driven by
branded formulations segment, API segment, insulin,
other emerging markets and research services.
o EBIDTA margin to sustain at current levels of 29%.
• Update on generic insulin deal with Pfizer:
o India: The company targets to launch reusable pen
devices in the domestic market by the end of F2Q12, with
competitive pricing. According to the company, the pen
market in India is dominated by reusable devices. It is
procuring the pen devices from a German company.
Management expects Pfizer to launch insulin and glargine
in the domestic market in the coming quarter.
o Europe: It targets to launch insulin in the EU in 2013.
• Update on Mylan deal: The company has identified five
targets under the deal. According to management, the deal
is progressing on track, although regulated market
opportunity is few years away.
• Fidaxomicin update: Optimer has launched fidaxomicin in
the US market. Biocon is the sole supplier to Optimer and
started the supply in June 2011. Management expects
fidaxomicin to be a high-margin opportunity.
• Domestic branded formulations grew 28% YoY in F1Q12.
Diabetology segment constitutes over 50% of the total
domestic branded formulations business. Biocon now ranks
third in the insulin space (according to the company, April 11
MAT). It has field force strength of about 1,120
representatives and targets to expand it to 1,500.
• Research services: Syngene and Clinigene clocked
revenue of Rs8.74bn (up 21% YoY, down 1.5% QoQ) and
net income of Rs100mn (vs. break even last year). The
company expects the growth momentum for the research
services business to continue. Management is targeting an
IPO of this segment over the next 18-24 months.
• NCE pipeline update: Management is currently under
active discussions with various potential partners for
out-licensing its lead compounds – oral insulin (IN105) and
Itolizumab (anti CD6 compound).
• Statins segment: Statins segment is stable, and the
company expects to lower the reliance on the statins
segment gradually in the coming years.
• Research and development: Management expects R&D
expense to rise to 8-10% of revenues for F2012.
• Capex: The company targets to incure capex in the Rs1.5bn
range for F2012, excluding Malaysia facility. Malaysia facility
(generic insulin, under Pfizer deal) project will be funded by
internal accruals and debt.
Morgan Stanley is acting as a financial advisor to Pfizer Inc.
("Pfizer") in relation to its review of strategic alternatives for its
Nutrition business. Pfizer will pay fees to Morgan Stanley for its
services, including transaction fees that will be subject to the
consummation of any resulting transaction. Please refer to the
notes at the end of the report.
Morgan Stanley is currently acting as financial advisor to Pfizer
Inc. ("Pfizer") with respect to the sale of its Capsugel business
to Kohlberg Kravis and Roberts & Co L.P., as announced on
April 4, 2011. Upon completion of the transaction, Pfizer will
pay fees to Morgan Stanley for its financial advisory services.
Please refer to the notes at the end of the report.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Biocon Ltd
Disappointing Quarter; EW
Quick comment – Below-expectation quarter: Muted
sales growth of 10% and lower licensing income led to
an unimpressive 7% rise YoY (ex Axicorp) in net profit to
Rs700mn (MSe Rs969mn). Excluding licensing income,
the company reported Rs660mn in net profit (our
estimate Rs711mn). Per management, disruption in the
Middle East and lower licensing income were the key
reasons for the disappointment.
Update on key drivers: Pfizer deal – The company
targets to launch reusable pen device and two products
(insulin and glargine) in India as part of the deal in
F2Q12. It targets to launch insulin in the EU in 2013.
Mylan deal – BIOS has identified five products for
development, and progress is on track. It did not provide
launch timelines, but did indicate that regulated market
opportunity is a few years away. Fidaxomicin – BIOS
has started supplying fidaxomicin to Optimer and is the
sole API supplier. It expects this to be a high-margin
opportunity.
Other highlights: It targets to expand its field force in
the domestic market to 1,500 (from 1,120 now). Biocon
is targeting to list (IPO) its research services business in
the next 18-24 months. It expects licensing income to
be lumpy on a quarterly basis, since revenue recognition
is driven by development and regulatory milestones, but
expects the income to recur (at F2011 level) on a full-
year basis.
Outlook for F2012: Management expects: 1) growth
momentum to continue, driven by fidaxomicin, branded
formulations, insulin (Pfizer deal), emerging markets,
and research services; and 2) EBIDTA margin to sustain
at current levels of 29%. Statins business is likely to
remain stable. R&D expense is expected to rise to
8-10% of revenue. Capex to be in the Rs1.5bn range (ex
Malaysia facility).
We retain our EW rating in view of limited depth in the
near-term product pipeline and distant (three-years plus)
monetization time frame for insulin/MAbs in the
regulated markets.
Key highlights from the earnings call:
• Outlook: Management expects
o Growth momentum to continue in F2012, driven by
branded formulations segment, API segment, insulin,
other emerging markets and research services.
o EBIDTA margin to sustain at current levels of 29%.
• Update on generic insulin deal with Pfizer:
o India: The company targets to launch reusable pen
devices in the domestic market by the end of F2Q12, with
competitive pricing. According to the company, the pen
market in India is dominated by reusable devices. It is
procuring the pen devices from a German company.
Management expects Pfizer to launch insulin and glargine
in the domestic market in the coming quarter.
o Europe: It targets to launch insulin in the EU in 2013.
• Update on Mylan deal: The company has identified five
targets under the deal. According to management, the deal
is progressing on track, although regulated market
opportunity is few years away.
• Fidaxomicin update: Optimer has launched fidaxomicin in
the US market. Biocon is the sole supplier to Optimer and
started the supply in June 2011. Management expects
fidaxomicin to be a high-margin opportunity.
• Domestic branded formulations grew 28% YoY in F1Q12.
Diabetology segment constitutes over 50% of the total
domestic branded formulations business. Biocon now ranks
third in the insulin space (according to the company, April 11
MAT). It has field force strength of about 1,120
representatives and targets to expand it to 1,500.
• Research services: Syngene and Clinigene clocked
revenue of Rs8.74bn (up 21% YoY, down 1.5% QoQ) and
net income of Rs100mn (vs. break even last year). The
company expects the growth momentum for the research
services business to continue. Management is targeting an
IPO of this segment over the next 18-24 months.
• NCE pipeline update: Management is currently under
active discussions with various potential partners for
out-licensing its lead compounds – oral insulin (IN105) and
Itolizumab (anti CD6 compound).
• Statins segment: Statins segment is stable, and the
company expects to lower the reliance on the statins
segment gradually in the coming years.
• Research and development: Management expects R&D
expense to rise to 8-10% of revenues for F2012.
• Capex: The company targets to incure capex in the Rs1.5bn
range for F2012, excluding Malaysia facility. Malaysia facility
(generic insulin, under Pfizer deal) project will be funded by
internal accruals and debt.
Morgan Stanley is acting as a financial advisor to Pfizer Inc.
("Pfizer") in relation to its review of strategic alternatives for its
Nutrition business. Pfizer will pay fees to Morgan Stanley for its
services, including transaction fees that will be subject to the
consummation of any resulting transaction. Please refer to the
notes at the end of the report.
Morgan Stanley is currently acting as financial advisor to Pfizer
Inc. ("Pfizer") with respect to the sale of its Capsugel business
to Kohlberg Kravis and Roberts & Co L.P., as announced on
April 4, 2011. Upon completion of the transaction, Pfizer will
pay fees to Morgan Stanley for its financial advisory services.
Please refer to the notes at the end of the report.
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