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IPO-bound Biocon Biologics in talks with Abu Dhabi fund ADQ to raise fresh capital

If the negotiations fructify— coming two weeks after the Goldman Sachs deal—it would mark the fourth successive investment in the Kiran Mazumdar Shaw-led Biocon unit in 2020.The last fundraise was struck at a valuation of $3.94 billion.

November 24, 2020 / 12:21 PM IST

Biocon Biologics is in talks to raise funds from ADQ, the Abu Dhabi government’s sovereign wealth fund, as India’s leading biosimilar firm looks to strengthen its manufacturing muscle and add value to shareholders ahead of a proposed IPO, people familiar with the matter told Moneycontrol.

The negotiations to raise fresh capital come two weeks after Biocon Biologics, a unit of Kiran Mazumdar Shaw-led Biocon, announced a $150-million infusion by Wall Street powerhouse Goldman Sachs. If the talks fructify, it would mark the fourth successive investment in the company this year.

The last fund-raising round resulted in a pre-money equity valuation of $3.94 billion for the firm, which is aiming for an initial public offering in two to three years. It would also mark the debut investment by ADQ in the Indian pharma sector.

“ADQ has held discussions to invest up to $100 million in Biocon Biologics and due diligence is being carried out on the proposed transaction. The deal is part of the overall strategic plan of value creation for the shareholders through Biocon Biologics, which is gearing up for a listing over the next two to three years,” said one of the persons cited above.

“Biocon Biologics is looking to build value and invest in its R&D and manufacturing capabilities. ADQ was keen to invest in a high-quality pharma and healthcare firm in India with strong pedigree and corporate governance standards,” a second person told Moneycontrol.

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A biosimilar is a biologic product that demonstrates similarities with another biologic medicine (commonly known as a reference product) that is already licensed. Clinically, it has no meaningful differences in terms of safety and effectiveness from the reference product, but require regulatory approval.

The Biocon arm has set a target of serving 5 million patients and clocking $1 billion in revenues in FY22.

Sovereign wealth funds like ADQ are well connected and this deal can help Biocon Biologics get better access to the Middle East market. Investment bank Allegro Capital Advisors is advising Biocon Biologics on the fund raise,” he added.

A third person confirmed the ongoing discussions.

All the three spoke to Moneycontrol on the condition of anonymity.

In response to an email query from Moneycontrol, a spokesperson for Biocon Biologics said, “We have recently announced about Goldman Sachs investment in Biocon Biologics and would inform about other investments as they mature. As a part of the process, we continue to engage with several global investors in line with the clarifications provided to the Stock exchanges in 2019. We would not like to comment on any specific wealth fund at this point in time.”

Moneycontrol is awaiting responses from ADQ and Allegro Capital Advisors and has sent reminders. This article will be updated when we hear from them.

Goldman Sachs, private equity player True North and Tata Capital Growth Fund have participated in three previous fund- raising rounds in Biocon Biologics. The company has raised a total of $255 million in 2020.

THE ADQ STRATEGY

ADQ, which was established in 2018, owns assets such as Abu Dhabi Ports, Abu Dhabi Airport and bourse operator ADX. It has also built a portfolio of food and agriculture businesses and recently picked up a 22 percent stake in Dubai-based courier Aramex. Earlier, in November, the fund had announced the acquisition of a 45 percent stake in Swiss commodities trader Louis Dreyfuss Company (LDC).

Established in Abu Dhabi in 2018, ADQ is one of the region's largest holding companies with direct and indirect investments in more than 90 companies. Its portfolio of major enterprises span key sectors across Abu Dhabi's economy, including food and agriculture, aviation, financial services, healthcare, industries, logistics, media, real estate, tourism and hospitality, transport and utilities.

The Middle East investment arm has also rolled out a new $300 million venture capital fund—Alpha Wave Incubation (AWI) Fund—to invest in startups in India and South-East Asia. Reports indicate that AWI is mulling an investment in online insurance platform PolicyBazaar.

BIOCON BIOLOGICS: THE ROAD TO A BIG-BANG LISTING

According to Biocon’s latest annual report, the Biologics business ended FY20 reporting a 29 percent growth in revenue at Rs 1,951 crore.

“The market opportunity is expected to double over the next couple of years with developed market sales projected to increase in FY21 and beyond. The recent launch of Trastuzumab in the US, the upcoming launch of Insulin Glargine in the US, and Pegfilgrastim in the EU coupled with the launch of Insulin Aspart and Bevacizumab in EU and U.S. markets through Mylan in the next calendar year will be drivers of this growth,” the annual elaborated on the biologics segment.

Biocon Biologics has a “presence in the majority of the top 20 markets, which should aid expansion in MoW markets with further uptake, launch of new products and entry into new markets,” it said.

“We expect capex spends to be ~USD 200 million in FY21, split equally between Small Molecules and the Biosimilars businesses. We are well-positioned for success as an early mover in the biosimilars space with a large portfolio of products and limited competition in some of the molecules,” the report added.

“Biocon Biologics has plans to invest $200 million per year in capex for FY21 and FY22. This unlocking of value through PE funding will enable us to fund capex investments for further strengthening our business. Additionally, as the biosimilars business scales up and generates good margins that will also generate operating cash to fund our investment objectives,” said Chinappa MB, CFO, Biocon Biologics in an earlier media interview in August 2020.

According to research report estimates, the global biosimilars market size is expected to grow to $35.7 billion by 2025 from $ 11.8 billion in 2020, at a CAGR of 24.7 percent. The segment is experiencing significant growth due to rising cases of chronic diseases and the increasing demand for biosimilars due to their cost-effectiveness.
Ashwin Mohan

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