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Clinical Gains...!
Biocon has shifted its focus from statins to branded biotech formulations and contract research services. We
estimate core Biopharma division to grow at 15% CAGR over FY11-14E with increasing contribution from domestic
branded formulations and ramp up in fidaxomicin bulk supplies. The termination of Pfizer deal limits scope of
monetisation over its Biosimilar insulins in key markets. The Mylan collaboration (products going off-patent
2015 onwards) however is on track. We estimate 22% revenue growth in its CRO segment over FY11-14E with
increased focus on integrated drug development services. Favourable data on Oral insulin IN105 (Phase I trials
ongoing in US) shall be a key valuation driver, given the potential size of the opportunity and the status as a
novel product.
Investment Rationale
Risk Adjusted Growth Strategy
Biocon is the only company which has made remarkable progress in the Indian
Biotech industry with oncology and diabetes as its focus areas. Over the years,
the company has entered into strategic partnerships and acquired IPR’s in the
diabetic space. The company is making efforts to move up the value chain through
selective 505 (b) 2 & ANDA filings.
Biopharma Segment (82% of FY11 sales) – To sustain growth momentum
The company’s dependency on statins is expected to decline, although the
segment is to offer near-term stability owing to the patent expiration of
Atorvastatin. The branded formulations business is expected to grow by 34%
YoY during FY12E (FY11: ` 1.8bn) and touch the ` 5bn mark over the next three
years. Ramp up in sales from Fidaxomicin supplies to Optimer will further add to
the growth momentum. The termination of Pfizer deal limits scope of monetisation
over its Biosimilar insulins in key markets which stood as a key growth catalyst
in the long run.However, product-development arrangement with Mylan (five
biosimilar products, going offpatent 2015E onwards) is on track. We expect this
division to grow at 15% CAGR over FY11-14E.
Contract Research segment (18% of FY11 sales) – Gaining scale
The BMS contract (7 year contract), with 450 FTE’s, contributes 30% of Syngene
sales. The company intends to gain scale in this vertical and shall consequently
work out the modalities of getting Syngene listed. We expect CRO division to
grow at 22% CAGR over FY11-14E.
Monetization of NCE pipeline around the corner
The company is in active discussions with several potential partners for the
global development and launch of IN105. Recently released data from the Phase
III trials of Anti-CD6 (psoriasis and other auto-immune diseases) shows positive
results indicating a favorable risk-benefit profile. We expect the molecule to be
out-licensed next year.
Valuation
Revenue scale up in domestic branded business, Fidaxomicin bulk and higher
generic Atorvastatin supplies, shall aid near-term revenue growth. Higher R&D
costs (as the product pipeline advances) restricts margin expansion. Uncertainty
over monetization of biosimilar insulins post-Pfizer split has weighed down
valuations. At CMP, the stock trades at 14.3x and 12.1x FY12E and FY13E
earnings respectively. We maintain our Buy recommendation with a revised target
price of ` 285 (13x FY14E EPS).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Clinical Gains...!
Biocon has shifted its focus from statins to branded biotech formulations and contract research services. We
estimate core Biopharma division to grow at 15% CAGR over FY11-14E with increasing contribution from domestic
branded formulations and ramp up in fidaxomicin bulk supplies. The termination of Pfizer deal limits scope of
monetisation over its Biosimilar insulins in key markets. The Mylan collaboration (products going off-patent
2015 onwards) however is on track. We estimate 22% revenue growth in its CRO segment over FY11-14E with
increased focus on integrated drug development services. Favourable data on Oral insulin IN105 (Phase I trials
ongoing in US) shall be a key valuation driver, given the potential size of the opportunity and the status as a
novel product.
Investment Rationale
Risk Adjusted Growth Strategy
Biocon is the only company which has made remarkable progress in the Indian
Biotech industry with oncology and diabetes as its focus areas. Over the years,
the company has entered into strategic partnerships and acquired IPR’s in the
diabetic space. The company is making efforts to move up the value chain through
selective 505 (b) 2 & ANDA filings.
Biopharma Segment (82% of FY11 sales) – To sustain growth momentum
The company’s dependency on statins is expected to decline, although the
segment is to offer near-term stability owing to the patent expiration of
Atorvastatin. The branded formulations business is expected to grow by 34%
YoY during FY12E (FY11: ` 1.8bn) and touch the ` 5bn mark over the next three
years. Ramp up in sales from Fidaxomicin supplies to Optimer will further add to
the growth momentum. The termination of Pfizer deal limits scope of monetisation
over its Biosimilar insulins in key markets which stood as a key growth catalyst
in the long run.However, product-development arrangement with Mylan (five
biosimilar products, going offpatent 2015E onwards) is on track. We expect this
division to grow at 15% CAGR over FY11-14E.
Contract Research segment (18% of FY11 sales) – Gaining scale
The BMS contract (7 year contract), with 450 FTE’s, contributes 30% of Syngene
sales. The company intends to gain scale in this vertical and shall consequently
work out the modalities of getting Syngene listed. We expect CRO division to
grow at 22% CAGR over FY11-14E.
Monetization of NCE pipeline around the corner
The company is in active discussions with several potential partners for the
global development and launch of IN105. Recently released data from the Phase
III trials of Anti-CD6 (psoriasis and other auto-immune diseases) shows positive
results indicating a favorable risk-benefit profile. We expect the molecule to be
out-licensed next year.
Valuation
Revenue scale up in domestic branded business, Fidaxomicin bulk and higher
generic Atorvastatin supplies, shall aid near-term revenue growth. Higher R&D
costs (as the product pipeline advances) restricts margin expansion. Uncertainty
over monetization of biosimilar insulins post-Pfizer split has weighed down
valuations. At CMP, the stock trades at 14.3x and 12.1x FY12E and FY13E
earnings respectively. We maintain our Buy recommendation with a revised target
price of ` 285 (13x FY14E EPS).
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