Hold Biocon; target of Rs 1030: ICICI Direct

ICICI Direct's research report on Biocon

Small molecules segment accounts for 42% of the turnover and comprises APIs like statins, immunosuppressants & specialty APIs and also includes the generic formulations business. This vertical is witnessing pricing pressure in some products. The company is exploring fewer opportunities but with higher profitability in this segment such as moving into formulations and filing own ANDAs, 505 (b)(2) filings, etc. It has already filed seven to eight ANDAs cumulatively. These include complex generics and injectables. We expect the small molecules segment to grow at a CAGR of 10.8% to Rs 1885 crore in FY16-19E.

Encouraging developments on biosimilars front in the last six months have demonstrated the capability in the biosimilars space. What has cemented Biocon’s position as perhaps the best placed candidate among Indian companies is the series of positive outcomes from developed markets, be it approval and launch of Glargine in Japan or presentation of Trastuzumab data to ASCO or review acceptance from EMA. It will also provide an extra lever for growth besides Syngene & branded formulations. Although actual biosimilar launches in EU (and US) are some distance away, we believe the acknowledgement from developed market regulators is likely to improve the valuation perspective. We maintain our target price of Rs 1030 (SOTP basis).