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Termination of agreement with Pfizer
Biocon and Pfizer have terminated the $350mn (Rs17.5bn) agreement
for the supply of insulin and its analogues. Pfizer was to market
Biocon’s insulin products in various countries including the US. The
termination of agreement is negative for Biocon in the short term as it
has to find another partner to market its insulin products in the
developed and developing markets or alternatively to create its own
marketing set up. The exit of Pfizer is due to the change in business
priorities in Pfizer’s biosimilar programs. Biocon has already received
$100mn (Rs5.0bn) upfront payment and is likely to receive a major
portion of $100mn (Rs5.0bn) lying in escrow account. Moreover,
Biocon will also get undisclosed settlement fees on termination of the
agreement. We reiterate Buy with a revised target price of Rs350
(based on 16x FY14 EPS).
Details of the Pfizer agreement: Biocon entered into an agreement
with Pfizer Inc., US for the supply of human recombinant insulin and
its three analogues in October’10. The four biosimilars have a
combined market size of $14bn (Rs700bn). The deal size was $350mn
(Rs17.5bn). Under the agreement, Biocon has already received
$100mn (Rs5.0bn) as upfront payment and $100mn (Rs5.0bn) is lying
in the Escrow account. Biocon is likely to get the major portion of this
amount. In addition, the company was to receive additional
development and regulatory milestone payments up to $150mn
(Rs7.5bn) but is unlikely to receive this amount. Biocon was also to
receive additional payments linked to Pfizer’s sales of four insulin
biosimilars across the global market.
Bicon to retain intellectual property: As on 12th March’12, all rights
of insulin range of products licensed to Pfizer will revert to Biocon. All
insulin products distributed under the brand names Univia and
Glarvia will be available to Biocon only. Hence, all intellectual
property rights under the deal will revert to Biocon. Hence Biocon is
not a loser in terms of milestone payments and intellectual property
rights.
Company to receive settlement fees: Biocon is likely to receive an
undisclosed settlement fees on the termination of the agreement
with Pfizer. This will be reflected in Q4FY12 results of Biocon.
In search of another partner: Biocon and Pfizer have said that due
to the individual priorities for the biosimilar business it is in the best
interest to move forward independently. Biocon will have to find
another partner to market its insulin range of products in the
developed and developing markets. There are three major players in
the global insulin market namely: Novo Nordisk, Eli Lilly and Sanofi
Aventis. Currently, Biocon has 15 partners in various emerging
markets. Alternatively, Biocon will have to establish its own
marketing set-up. Both these are time consuming exercises.
Divestment of Axicorp stake: After entering into the insulin
agreement with Pfizer, Biocon divested its majority stake in Axicorp,
Germany. Axicorp was a front of Biocon for marketing its products in
Europe. Hence, Biocon will have to establish its own marketing set-up
in Europe or find another marketing partner.
Out-licensing of NCEs: Biocon has plans to out-license its IN-105
oral insulin molecule to a global pharma company. The molecule has
completed phase III trials in India. The company’s other molecule
Itolizumab for psoriasis has completed phase III clinical trials in India
and has exhibited an excellent safety and tolerability profile. Biocon
has plans to out-license this molecule also.
Reiterate Buy: We have revised our EPS estimates downwards by
18% for FY13 and 23% for FY14 due to the termination of Pfizer deal.
At the CMP of Rs249, the stock trades at 12.5x FY13E EPS of Rs19.8
and 11.4x FY14E EPS of Rs21.9. We are positive on the long-term
prospects of the company in view of its strong growth in branded
formulations and CRAMS segments and the possibility of outlicensing
of two of its NCE molecules. We reiterate Buy with a target
price of Rs350 (based on 16x FY14E EPS).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Termination of agreement with Pfizer
Biocon and Pfizer have terminated the $350mn (Rs17.5bn) agreement
for the supply of insulin and its analogues. Pfizer was to market
Biocon’s insulin products in various countries including the US. The
termination of agreement is negative for Biocon in the short term as it
has to find another partner to market its insulin products in the
developed and developing markets or alternatively to create its own
marketing set up. The exit of Pfizer is due to the change in business
priorities in Pfizer’s biosimilar programs. Biocon has already received
$100mn (Rs5.0bn) upfront payment and is likely to receive a major
portion of $100mn (Rs5.0bn) lying in escrow account. Moreover,
Biocon will also get undisclosed settlement fees on termination of the
agreement. We reiterate Buy with a revised target price of Rs350
(based on 16x FY14 EPS).
Details of the Pfizer agreement: Biocon entered into an agreement
with Pfizer Inc., US for the supply of human recombinant insulin and
its three analogues in October’10. The four biosimilars have a
combined market size of $14bn (Rs700bn). The deal size was $350mn
(Rs17.5bn). Under the agreement, Biocon has already received
$100mn (Rs5.0bn) as upfront payment and $100mn (Rs5.0bn) is lying
in the Escrow account. Biocon is likely to get the major portion of this
amount. In addition, the company was to receive additional
development and regulatory milestone payments up to $150mn
(Rs7.5bn) but is unlikely to receive this amount. Biocon was also to
receive additional payments linked to Pfizer’s sales of four insulin
biosimilars across the global market.
Bicon to retain intellectual property: As on 12th March’12, all rights
of insulin range of products licensed to Pfizer will revert to Biocon. All
insulin products distributed under the brand names Univia and
Glarvia will be available to Biocon only. Hence, all intellectual
property rights under the deal will revert to Biocon. Hence Biocon is
not a loser in terms of milestone payments and intellectual property
rights.
Company to receive settlement fees: Biocon is likely to receive an
undisclosed settlement fees on the termination of the agreement
with Pfizer. This will be reflected in Q4FY12 results of Biocon.
In search of another partner: Biocon and Pfizer have said that due
to the individual priorities for the biosimilar business it is in the best
interest to move forward independently. Biocon will have to find
another partner to market its insulin range of products in the
developed and developing markets. There are three major players in
the global insulin market namely: Novo Nordisk, Eli Lilly and Sanofi
Aventis. Currently, Biocon has 15 partners in various emerging
markets. Alternatively, Biocon will have to establish its own
marketing set-up. Both these are time consuming exercises.
Divestment of Axicorp stake: After entering into the insulin
agreement with Pfizer, Biocon divested its majority stake in Axicorp,
Germany. Axicorp was a front of Biocon for marketing its products in
Europe. Hence, Biocon will have to establish its own marketing set-up
in Europe or find another marketing partner.
Out-licensing of NCEs: Biocon has plans to out-license its IN-105
oral insulin molecule to a global pharma company. The molecule has
completed phase III trials in India. The company’s other molecule
Itolizumab for psoriasis has completed phase III clinical trials in India
and has exhibited an excellent safety and tolerability profile. Biocon
has plans to out-license this molecule also.
Reiterate Buy: We have revised our EPS estimates downwards by
18% for FY13 and 23% for FY14 due to the termination of Pfizer deal.
At the CMP of Rs249, the stock trades at 12.5x FY13E EPS of Rs19.8
and 11.4x FY14E EPS of Rs21.9. We are positive on the long-term
prospects of the company in view of its strong growth in branded
formulations and CRAMS segments and the possibility of outlicensing
of two of its NCE molecules. We reiterate Buy with a target
price of Rs350 (based on 16x FY14E EPS).
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