For Q3FY18, Biocon’s revenue and EBITDA were ahead of our expectations due to 15% and 22% sequential growth in Syngene and Biologics business. Consolidated revenue of Biocon grew by 2% yoy to Rs1,058cr, EBITDA declined by 19.7% yoy to Rs221.7cr. EBITDA margins were at 21% vs. 26.6% in Q3FY17. PAT declined by 46.4% yoy to Rs91.9cr. The revenue and profitability was impacted due to headwinds in its small molecules business, pricing pressure in the US market and lower licensing and other income. The conference call highlighted that exciting times are ahead, as biologics and research businesses have continued to see improved outlook. Over next 12 month period, Biocon along with its partner Mylan, expects approval for 4-5 biosimilar assets, while research business is expected to come back to sustainable doubled digit growth trajectory. Biocon, by launch of its biosimilar assets, is best placed to see multifold PAT growth over next five years.
1. Biocon’s statins business continues to face headwinds due to channel consolidation, immune-suppressants continue to see sustained demand.
2. Biologics business revenue was impacted due to the lower licensing income, adjusted for which, biologics revenue grew by 16% yoy.
3. Biosimilars space remains most attractive due to (a) signing of partnership agreement with Sandoz to develop and manufacture next generation biosimilars in immunology and oncology, (b) approval to 4-5 biosimilars co-developed under Biocon-Mylan partnership in 2018 across US and EU, (c) approval to Pegfilgrastim in US expected in H1FY19 with launch expected by late 2018 or early 2019, (d) expected pick up in biosimilar revenue in EMs due to requalification activities at its Bangalore facility, (e) Trastuzumab approval by USFDA and ANVISA and acceptance of resubmission of Marketing Authorization Application Trastuzumab and Pegfilgrastim by European agency.
4. Insulin business has also seen several positives like (a) approval to recombinant human insulin by Brazilian drug regulator (current market size of $100mn), (b) approval to Insulin Glargine in Russia and three Ems, launch is expected later in 2018, (c) Insulin Glargine approval in the US should take some time due to the 30-month regulatory, which ends in March 2020, (d) stage II/III clinical trials have commenced for Insulin Tregopil in India post the DGCI approval.
5. Branded formulations business in India/UAE clocked 27% yoy growth. Krabeva (oncology biosimilar in India) has received encouraging response. UAE business continues to remain strong.
6. Research business has continued to recover in the quarter with 17% yoy growth, Bristol-Myers Squibb (BMS) research agreement expanded until 2026 with additional R&D set up opportunity for Syngene.
7. Biocon has consolidated all its biosimilar assets under new entity Biocon Biologics Limited, management has indicated of possible listing of this business for value unlocking and raising funds to develop new biosimilars, the timeline remains uncertain.
8. Next year company expects to spend Rs100cr as maintenance capex and has announced a fresh capex of $150-170mn to construct a new antibody plant over FY19-20E.
Biocon Ltd is currently trading at Rs. 606.75, down by 27.85 points or 4.39% from its previous closing of Rs. 634.60 on the BSE.
The scrip opened at Rs. 602.65 and has touched a high and low of Rs. 617.30 and Rs. 600.25 respectively. So far 43,12,894(NSE+BSE) shares were traded on the counter. The stock is currently trading below its 50 DMA.
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