The biologic manufacturing is still a very nascent sector, however Biocon has been frontrunner in this sector. It already has Trastuzumab approved by USFDA, while EU approval is awaiting. Pegfilgrastim approval is also expected in US and Europe soon. Another product, Glargine is expected to get EU/Australia approval in 2018 while US approval will be possible in 2020. In the past few years, when Indian generic companies were minting huge money in the US market, Biocon was way behind its peers, but with this stroke in biologics, Biocon will make up for the gap, in revenue and market cap.
Biocon’s application for Pegfilgrastim is likely to be reviewed by the USFDA in June 2018. The European regulatory authority (EMA) is also likely to inspect the Biocon’s Bangalore facility from where both Trastuzumab and Pegfilgrastim have been filed for European markets. Mylan and Biocon have also received positive CHMP opinion for Insulin Glargine and approval should take place soon. Company's total pipeline represents biologic brand sales worth $66bn. Further, Biosimilars should pave way for strong revenue/PAT opportunity. The big drug approvals come with the premium valuation attached to it. This has been seen in case of gCopaxone for Natco or Trastuzumab for Biocon.
Biocon generated total sales of $600mn in FY17 and $1bn revenue just from biologics, which shows how big the biologics opportunity is for Biocon. Assuming a 10% CAGR in its revenue, ex-biologics and adding potential revenue of $1bn in the business, Biocon is likely to generate total sales of ~$2.3bn in 2025, a strong 32.5% CAGR in revenue over FY18-25E. At the times, when Indian pharma companies are under pressure to generate sales in the US markets, Biocon will be generating huge sales, free cash flows and RoE.
The Indian companies are several years behind Biocon in biosimilar opportunity, hence Biocon’s growth will be much ahead than its Indian peers going ahead. Due to this, Biocon will also be the only opportunity in the biologics segment, and hence should also see some scarcity premium attached to it. The high growth rate and RoE means that Biocon will anyway be valued at a better multiple. Currently, Biocon is valued at 20x of its FY20E EPS.
Biocon is also planning to list the biologics business separately, which should lead to value unlocking in this business. We have already seen successful listing of Syngene which has been attracting premium valuations due to the differential and niche business model.
By 2025, Biocon can cross a market cap of Rs1 lakh cr if it generates sales of $1bn from Biologics segment. This is a great opportunity in the pharma sector at the moment.
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