Investors cheer Biocon progress

The biosimilars torchbearer added ~21,000 crore to its m-cap over the past two years

The Biocon stock has jumped 230 per cent in the past two years, taking its market capitalisation to ~30,756 crore, a gain of ~21,000 crore. The stock on Monday gained 15 per cent to close at ~512, after the company on Saturday got the US Food and Drug Administration (FDA) approval for cancer biosimilar Trastuzumab.

This is in contrast with an over 22 per cent drop in the Nifty Pharma index in the past two years. As the US government took steps to bring down drug prices, stocks of Indian pharmaceutical suppliers dropped. For instance, Sun Pharmaceutical lost 30.5 per cent in this period, wiping away ~56,000 crore in market value for investors.

Investors’ love for Biocon, the biosimilars maker, has not come easily. For, developing a copycat version of biologic drugs is far more expensive and takes much longer than developing a generic version of chemical drugs. Biocon was for long a laggard in the Indian pharma pack. A five-year analysis of Indian pharma stocks showed it grew 61 per cent in the first three years, much below the 98 per cent achieved by the Nifty Pharma.

Analysts estimate the cost of developing a generic drug rarely exceeds $5 million (~32 crore) and takes longer than a year. Biosimilars can cost $40-50 million and take as much as four years. If for developed markets, especially the US, the cost and time could be much more.

That is the reason behind the seven years’ toil of Biocon that finally saw success last week, when the US FDA gave its approval for Trastuzumab. This is potentially the first biosimilar to Herceptin, a branded drug by Roche and used in the treatment of breast cancer and metastatic stomach cancer. It became the first Indian firm and the first ahead of three global rivals which got the regulator’s nod for this in the highly regulated market. This gives it opportunities to tap other global markets with the drug before launch by its partner, Mylan, in the US.

“This is seven years of research with huge investment in research & development and no guarantees,” said Kiran Mazumdar-Shaw, chairperson and MD, Biocon.

According to a Frost & Sullivan report of last year, the wave of patent expiries on biologic medicines coming till 2020 could be worth about $80 billion to companies that get these to the market. Herceptin alone has $2.7 billion in yearly branded sales in the US.

Mylan/Biocon is also the only company to have settled with Roche for launch in the US and the European Union (EU). The partnership has also re-filed in the EU for the product, following facility remediation in India. The EU is a $2.1-billion brand sales market, with a similar competitive landscape to the US.

“Clearance for the facility presumably removes the last remaining hurdle for approval of the Neulasta biosimilar. Between Herceptin and Neulasta, Mylan/Biocon will be one of the few biosimilar participants in a $9-billion branded market,” said Abhishek Sharma, analyst with domestic brokerage Indian Infoline. “With only these two products, the partnership could expect to generate sales of $800 to $900 million by 2021 in the regulated markets. ”Biocon is the minority profit sharing partner in the combine.

Though big, the FDA clearance for Trastuzumab is not the first success Biocon has tasted. In March last year, it got approval for sale in Japan of biosimilar insulin glargine. It was the first sign of Biocon’s bet finally paying off that got investors’ attention and money. The stock further ran up since Biocon and partner Mylan applied last year in November to the US regulator to make a competing version of Herceptin.

Now, with its approval, says Mazumdar-Shaw, “Our credibility has been established that we are a company that has the high-end capability to seriously look at the global market with our biosimilars”.

However, the challenge for Biocon is still not over as Chirag Talati, analyst with Kotak Securities wrote in his note, “While, in many ways, the approval marks a watershed moment for Biocon, the focus should now shift to commercials, where we believe the competition landscape continues to deteriorate, with biosimilar Herceptin likely to turn into a four to five player market by first half of calendar year 2019.”