Q1FY24 Review: Biocon: Limited triggers for FY24

14 Aug 2023 , 10:58 AM

Biocon’s Q1 Ebitda, adjusted for Rs1.67bn of licensing income and USD15mn of rebates for legacy Pegfilgrastim contracts — missed analysts of IIFL Capital Services estimates by 16%, as Biologics business performance/margins were also impacted by phasing of the Tender business in EMs. With sales ramp-up in biosimilar Humira expected to be gradual given the intense competition and the fact that Biocon doesn’t have preferred formulary status with any of the key PBMs in the US, analysts of IIFL Capital Services cut their Humira sales assumptions for FY24/25 from USD100/250mn earlier to USD40/160mn, thereby leading to 14/12/7% Ebitda downgrades for FY24/25/26. While biosimilar Aspart remains a more lucrative opportunity given the limited competition, it is likely to miss the contracting cycle for Aspart in CY24 as well because its USFDA approval would be delayed owing to the recent ‘483 on the Malaysia facility. Given the limited triggers this year, analysts of IIFL Capital Services maintain their ADD rating (TP Rs265), but continue to see further earnings downgrade risks for Biocon. 

Pegfilgrastim rebates & EMs tender phasing impacted Biologics sales: 

Adjusted for licensing income and USD15mn of rebates for Pegfilgrastim, Biologics revenue increased QoQ from USD234mn to USD240mn. While Biocon’s MS in Glargine/Pegfilgrastim/Trastuzumab has increased to 12/16/11% in Jun’23, the phasing issue of EMs tender sales in Q1 led to business Ebitda margins contracting QoQ from 23% to 19%. Core margins, pre-R&D and ex-rebate impact, was 32% in Q1 and mgmt expects core margins to improve to mid-30s before FY24-end. 

Humira sales ramp-up to be gradual: 

With Amgen garnering only USD70mn sales in Humira during 6-months of exclusivity & AbbVie also pointing to only high-single-digit volume MS erosion for H2CY23, bHumira uptake will be gradual for the entire industry. Biocon also doesn’t have preferred formulary status with PBMs (Optum Rx/Express Scripts) who account for 50% of the US Humira market. Hence, the company is targeting Medicare & Medicaid channel. Analysts of IIFL Capital Services assume the Biologics sales to grow from USD950mn to USD1.3bn in FY25, led by USD160/70mn from Humira/Aspart. 

Mgmt is targeting 18-20% Cagr in Generic biz over next 5yrs, as Biocon is investing in a new generic injectables facility and peptides development as well. The company has 15 peptides in development (including Semaglutide), of which Liraglutide has already been filed in the US/EU. Analysts of IIFL Capital Services haven’t yet built generic Revlimid in their estimates for Biocon.