"At current market price, there is little comfort on the valuation front. We expect moderate upside of 10 percent from current level as we believe the valuations are expensive," says Akash Jain, Vice-president, Equity Research at Ajcon Global Services.
Biocon has seen a good run up in the past. At current market price, there is little comfort on the valuation front. We expect moderate upside of 10 percent from current level as we believe the valuations are expensive.
We are upbeat on the long term performance of the company and believe it will do well in coming years in terms of earnings growth owing to its robust product mix. The company is unique and strong play on bio-similars segment. The healthy bio-similar pipeline provides good visibility for top line growth.
The company' s next two years, capex is expected to be Rs 1,000 crore, excluding fresh capex announced by Syngene. The net R&D expenses, excluding Syngene, were Rs 51 crore adjusting for capitalising gross R&D expenses, excluding Syngene, were at Rs 98 crore, 13 percent of sales in Q4FY18. The Malaysia facility made a USD 5 million operational loss in FY18, however next year, i.e. FY19E, Malaysia facility will make a break even.
Biocon is India's largest and fully-integrated, innovation-led biopharmaceutical company. As an emerging global bio-pharmaceutical enterprise serving customers in over 120 countries, it is committed to reduce therapy costs of chronic diseases like diabetes, cancer and autoimmune. Through innovative products and research services it is enabling access to affordable healthcare for patients, partners and healthcare systems across the globe. It has successfully developed and taken a range of Novel Biologics, Biosimilars, differentiated Small Molecules and affordable Recombinant Human Insulin and Analogs from 'Lab to Market'.
The company has a rich pipeline of Biosimilars and Novel Biologics at various stages of development including Insulin Tregopil, high potential oral insulin.
Commenting on the highlights, Chairperson & Managing Director, Kiran Mazumdar-Shaw stated, “We concluded the year with a strong revenue growth of 27 percent in Q4FY18 led by Biologics and Research Services businesses, which grew 47 percent and 45 percent, respectively. Our traditional Small Molecules and Branded Formulations businesses also turned in a positive performance this quarter. We crossed a key milestone in Q4 when our Insulin Glargine, received regulatory approvals in the developed markets of Europe and Australia. Our biosimilar Trastuzumab also got approval in Turkey."
“The muted FY18 performance was on account of continued pricing challenges in the generics business coupled with a planned plant shut down for requalification and lower licensing income in the biologics business. In addition, operational expenses related to our Malaysia facility impacted the bottom line. However, a positive Q4 is indicative of a normalized business trend. Recent approvals of our biosimilars along with the strong performance of Syngene are expected to positively impact overall performance in FY19.”
Semglee, Insulin Glargine co-developed by Biocon and Mylan, is the first biosimilar from the partnered portfolio to be approved in the developed markets of EU and Australia.
Biocon also received Insulin Glargine approval in South Korea and biosimilar Trastuzumab approval in Turkey.
Biocon and Mylan agreed to accelerate the introduction of biosimilar Adalimumab in Europe through Mylan’s in-licensing arrangement with Fujifilm Kyowa Kirin Biologics, to enable launch in EU, around market formation.
Biocon and Mylan have agreed to expand their long-standing collaboration to add two new next-generation biosimilar programs with Insulin Glargine 300 units/mL and Pertuzumab.
Review of Business segments in Q4FY18
The Small Molecules business reported a revenue growth of 8 percent for the quarter at Rs 426 crore led by a higher uptake in key statins & Rosuvastatin formulations and a steady performance by immunosuppressants.
Regulatory filings for key APIs in developed and emerging markets prepare the business for a better play, going forward. Generic formulations business is on track with a few ANDA submissions being made in Q4.
BIOLOGICS: Biosimilars & Novels
The Biologics vertical, comprising Novel Biologics and Biosimilars, recorded a strong growth of 47 percent at Rs 241 crores in the quarter, led by Insulins as well as biosimilar monoclonal antibodies (mAbs). The strong growth in Insulins business was driven by a good traction in key markets like Mexico, Malaysia and the AFMET region.
The sales of mAbs were largely boosted by the expansion ofits biosimilar Trastuzumab footprint in emerging markets. However, on an annual basis, the Biologics business growth was muted due to higher licensing income in the previous year and planned plant shut down for requalification post audit. Excluding Licensing Income, Biologics reported a growth of 29 percent in FY18.
Insulins & Analogs: Regulatory & Other Developments
The approval of its biosimilar Insulin Glargine Semglee by the European Commission (EC) in Q4FY18, following a positive recommendation earlier by the Committee for Medicinal Products for Human Use of the European Medicines Agency, was an important milestone for its Insulins business.
Semglee, 100 units/mL 3 mL prefilled disposable pen, is the first biosimilar from Biocon and Mylan’s joint portfolio to be approved in Europe. Additionally, Semglee 100 IU/mL 3 mL prefilled pen was approved by the Therapeutic Goods Administration (TGA), Australia. The EC approval of Semglee applies to all 28 European Union (EU) member states and the European Economic Area (EEA) member states of Norway, Iceland and Liechtenstein.
Semglee is expected to be launched by its partner Mylan in Australia and Europe in the second half of CY 2018.
Biocon also obtained regulatory approvals for biosimilar Insulin Glargine in South Korea and its local partner is expected to commercialise the product later this year.
In the US, Mylan’s application for Insulin Glargine under the NDA pathway is under review by the Food & Drug Administration (FDA).
For Insulin Aspart the company has completed its Phase I study and expect comparative PK/PD results in H1FY19.
Monoclonal Antibodies & Recombinant Proteins: Regulatory & Other Developments
In order to accelerate the introduction of biosimilar Adalimumab in Europe, Biocon and Mylan agreed for an in-licensing arrangement between Mylan and Fujifilm Kyowa Kirin Biologics (FKB).
FKB’s product is at an advanced stage of review and could potentially obtain approval in Europe in the second half of 2018, clearing the way for a potential launch by Mylan around market formation. Biocon retains its economic interest in this arrangement vis-a-vis Mylan, in line with its existing global collaboration for monoclonal antibodies.
Biocon and Mylan have also agreed to expand their long-standing collaboration with the addition of two new next-generation biosimilars, Insulin Glargine 300 units /mL and Pertuzumab. This will bolster its existing global biosimilars portfolio comprising antibodies & insulin analogs.
During Q4FY18, its Trastuzumab became the first biosimilar Trastuzumab to be approved in Turkey which is the fourth largest emerging market for this molecule. This approval enables the company to expand access to this lifesaving therapy for breast cancer patients in Turkey.
In Europe, the regulatory review of its Marketing Authorization Applications (MAAs) for biosimilar Trastuzumab and Pegfilgrastim are progressing well and the management expects decisions by CHMP by end of CY 2018.
The review of its Biologics License Application (BLA) for biosimilar Pegfilgrastim by USFDA is progressing. The company has responded to all information requests received till date and are awaiting their response by June 4, 2018. The global Phase III trial of its biosimilar Bevacizumab continues to make good progress.
The company’s Novel Biologics programs, including Insulin Tregopil, SiRNA, Itolizumab and Fusion Proteins, are on track. The Company continued to make progress in the pivotal Phase II/III clinical study with Insulin Tregopil, in people with Type 2 diabetes in India, with patients being dosed.
The Branded Formulations business, which includes sales in India and UAE, reported revenue of Rs 149 crore, a YoY growth of 14 percent in Q4FY18.
Branded Formulations - India business performance was led by some of the key brands like CANMAb, BIOMAb EGFR, TACROGRAF and PSORID. Many of its key brands, holding a double digit market share, continue to be ranked amongst the ‘Top 3’ brands in their respective segment. KRABEVA, our second oncology biosimilar launched in India in December 2017, crossed the ‘first 100 patients’ milestone in Q4FY18. However, the business continues to face operational challenges which have resulted in muted growth in FY 18.
The Branded Formulations business in UAE reported strong growth led by increase in sales of key branded generic products, newly introduced biosimilar Insulin Glargine, Glaricon and in-licensed novel products Jalra and Imprida.
NeoBiocon continues to be ranked among the top 15 pharma companies in UAE, while improved market share of brands like Statix, Zargo and Valis have improved the Company’s ranking in the cardiovascular segment to Number 4.
RESEARCH SERVICES – SYNGENE
The Research Services business through Syngene registered a growth of 45 percent at Rs 409 crore for Q4FY18, driven by the chemical development vertical and good traction in discovery services, as well as, strong support from the Biologics business.
During the quarter, Syngene signed a strategic, multi-year collaboration with GlaxoSmithKline (GSK) focusing on new drug discovery using Syngene’s discovery services platform. The collaboration also involves the setting up of a customised research facility for GSK.
Syngene's manufacturing facilities in Bengaluru were approved by the Japanese regulator, Pharmaceuticals and Medical Devices Authority (PMDA).Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.