Biosimilars portfolio monetisation key for Biocon

March quarter performance weak due to delay in product approvals

Biocon’s results for the quarter ending March 2017 was muted due to longer timelines for product approvals in some emerging markets, discontinuance of some in-licenced products and impact of the fire at Syngene, its subsidiary.

Research arm Syngene, which contributed about 30 per cent to overall sales, saw a 14 per cent year-on-year (y-o-y) decline in business in the March quarter as a fire in December led to a temporary disruption. The small molecules and biologics business, contributing about half to revenues, also saw flat sales. Only branded formulations saw growth of 25 per cent, but since it forms only 15 per cent of revenues, it was not enough to prevent overall sales from declining two per cent y-o-y to Rs 925 crore. Bloomberg consensus estimates had pegged revenues at Rs 1,061 crore.

With lower sales, Ebitda (earnings before interest, tax, depreciation and amortisation) at Rs 182 crore came significantly lower than estimates of Rs 253 crore. So did net profit, which at Rs 127 crore missed consensus estimates of Rs 152 crore. Little surprise that the Street was disappointed. Biocon’s stock corrected 1.3 per cent to Rs 1,105.35. The decline, however, was cushioned by the announcement of one bonus share for every two shares held in the company.

While the quarterly blip is due to delays in regulatory approvals and the fire incident, discontinuation of an in-licenced oncology product in India also impacted growth. For FY17, Biocon reported 16 per cent growth in sales, 34 per cent in Ebitda and 11 per cent in net profit. The increase in net profit, however, is higher if exceptional gains of Rs 147 crore in FY16 are adjusted for. Hence, it would be safe to say that despite some disruptions, Biocon’s full-year performance was decent. 

Going ahead, the focus of the Street will remain on monetisation of biosimilars, which can provide a big leap to Biocon’s earnings. Expectations on this front have led to the rally in Biocon’s stock, which touched its all-time high of Rs 1,188 on Tuesday. Biosimilars are biological drugs similar to the original biological patented drug.

With the US FDA having accepted the company’s second biologics license application (BLA) for proposed biosimilar Pegfilgrastim for review after having accepting another biosimilar, trastuzumab (both oncology drugs) in FY17, hopes are high. The Biocon-Mylan collaboration is on course for early launch of trastuzumab as Mylan has already announced a settlement with Genentech and Roche on their patented products. The launch of the drug thereby may be ahead of competition and as early as in the second half of FY18. About a month ago, analysts at Citi had raised the value for trastuzumab in their target price to Rs 195 per share of Biocon assuming earlier launch (H2CY18), higher peak market share (15 per cent) and higher success probability (90 per cent) to arrive at a target price of Rs 1,315. However, other analysts remain watchful. Those at Motilal Oswal Securities say the progress in biosimilars is impressive, but there are still uncertainties that cap the upside potential. 

Given the backdrop, monetisation of biosimilars remains the key catalyst for the stock.