Oct 19, 2010, 12.44 PM IST | Source: CNBC-TV18

Biocon touched 52-week high today, IIFL explains why

In an interview to CNBC-TV18, Bino Pathiparampil of IIFL said that this is a major development that can throw up significant opportunities for Biocon. Given the potential and capabilities of the company, it could even throw up more surprises down-the-line, he added.

The street has given a big thumbs up to the Biocon- Pfizer deal, taking the stock of Biocon to its 52-week high in the first hour of trade today.

In an interview to CNBC-TV18, Bino Pathiparampil of IIFL said that this is a major development that can throw up significant opportunities for Biocon.  Given the potential and capabilities of the company, it could even throw up more surprises down-the-line, he added.

According to him, the stock has already done well over the last three-four months including the movement up today, it has already rerated significantly and built-in a lot of upsides into the stock price.

Pathiparampil elaborated that the deal validates Biocons biological capabilities from one of the global leaders in the pharma world. He said that people so far were not sure about how big the biosimilar opportunity, especially in the regulated markets is going to play out.

The fact that Pfizer has committed such a big sum into that market highlights that a big pharma company is looking at the biosimilar market taking off and becoming a multibillion market over the next five-ten years, Pathiparampil added.

Biocon and global pharmaceutical major Pfizer have joined hands to deliver insulin treatments worldwide. Biocon will be responsible for the clinical development, manufacturing and supply of these insulin products.

Pfizer is going to make upfront payments totaling USD 200 million. Biocon is eligible to get additional payments of up to USD 150 million.

Here is the verbatim transcipt of his comments. Also watch the accompanying video.

Q: How significant is this development for Biocon?

A: Biocon has got wonderful deal with Pfizer. The deal implies couple of things. First of all it validates Biocons biological capabilities from one of the global leaders in the pharma world. It also highlights that the big pharma is committed to the biosimilars market. People so far are not sure about how big the biosimilar opportunity, especially in the regulated markets is going to play out but the fact that Pfizer has committed such a big sum into that market highlights the fact that the big pharma is looking at the biosimilar market taking off and becoming a multibillion market over the next five-ten years.

Q: How much would you need to up estimates for Biocon given this development and possibility of USD 200 million plus flowing in?

A: The immediate change in estimate would be the USD 200 million, which would come in immediately. We need to figure out yet from the company how they are going to recognize that accounting wise but otherwise that money is right away coming in. The remaining USD 150 million of milestone payments I would estimate that to come to the company over the next three-four years. More of that would be back-ended which would coincide with the European and US approvals of these biosimilar products.

Further to that there would be revenues from the sale of actual product of Pfizer as the sales pickup in markets including emerging markets US, Europe etc, which I would think can start as early as tomorrow because in emerging markets the products are already registered and being sold but I would look at significant product revenues accruing to Biocon starting FY14 or so.

Q: Its probably a bit while away but how significant could be the royalty payments linked to the eventual sales of this product because right now we are talking about milestones and upfront payments but there is some sales linkage payment as well. By when do you think that might kick in and how significant could that be given the size of this biosimilar product for insulin?

A: There is going to be certainly some sales related payments. We havent got a clear structure of whether it will be in the form of royalties or whether it would be just transfer pricing because Biocon is going to manufacture the product for Pfizer so the entire payment could be build-in as a transfer pricing structure where Biocon could build-in its margins into that price.

But those could start from tomorrow onwards if Pfizer decides to start selling immediately in the emerging markets but I wouldnt look at a very significant contribution from those payments till second half of FY13 or FY14 by when I would expect to see the European Union approval for the recombinant insulin.

Q: What about oral insulin? When does that start kicking in now given that the biosimilar product is already in the market--thats another trigger waiting to happen?

A: Oral insulin is totally different piece altogether. Biosimilar insulin essentially a generic drug development compared to chemical generics, biologic generics is much more complex process. Having said that, it is still a generic version. It is a repetition of what something has already been proven by some other company in the market. Whereas oral insulin is more like new chemical entity in its own. So it has to go through a very detailed clinical development programme which involves multiple phases of studies and multiple trails in each phases.

I would look at it as a more long-term play. I would think that till we see a more detailed phase two data from studies, its too early to comment on that product and it is very different from the biosimilar play.

Q: Do you think Biocon has a good chance of getting rerated now on the back of this development because of potential earnings stream opening up over the next three-four years. Do you think it might even command a higher valuation plan?

A: The stock has already done well certainly if you look at the stock over the last three-four months including the movement up today, it has already rerated significantly and built-in a lot of upsides into the stock price but still fundamentally I do remain positive on the stock, this is a major development that can throw up significant opportunities for the company and given that the potential, the capabilities of the company or validated it could even throw up more surprises down-the-line.

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