Biosimilar progress adds to Biocon’s prospects

Regulatory tailwinds and launches in EU, US to drive earnings

Improving prospects of its biosimilars portfolio have helped the Biocon stock gain about 14 per cent over the last month. Recently, the company received a positive recommendation for glargine (insulin) from the European Union’s Committee for Medicinal Products for Human Use, which implies a final approval for the product is in the offing.

In the US market, too, the company and its partner Mylan received approval in December for breast cancer drug trastuzumab, a biosimilar version of Roche’s herceptin. According to Morgan Stanley analysts, the US nod is likely to accelerate approvals in other emerging markets as well. They expect the monetisation cycle to begin soon for glargine in Russia and trastuzumab in Brazil.

The stock prices have more than doubled from the 52-week low in May 2017, and the majority of the gains came during the last three months, with an improving flow of regulatory updates.

While prospects remained strong, the company reported a soft December quarter. Revenue growth was up 1.3 per cent due to the muted performance of small molecules business. The segment’s (third of overall sales) revenues were down 9 per cent over the year-ago quarter.

Revenues in the biologics segment, which contribute about fifth of sales, were also down 15 per cent affected by a plant shutdown. This segment is expected to see growth pick-up led by recommissioning of the plant and ramp-up of key launches such as trastuzumab in Brazil. Further, a recovery in the research services business continues, with the segment reporting a 17 per cent growth. Branded formulation segments also recovered, driven by strong growth in the UAE and India.

However, operating performance was affected by rising staff costs, up 19 per cent, due to the commercialisation of the Malaysia plant as raw material and power costs, too, surged 15 per cent year-onyear (y-o-y). Operating profit was down 20 per cent at ~2.22 billion, as margins contracted 548 basis points y-o-y to 21 per cent. Lower other income and higher taxes affected the net profit, which was down 46 per cent y-o-y at ~92 million. While the quarterly results have not been impressive, prospects continue to remain strong, aided by earnings growth expected from biosimilar launches.

Centrum Broking’s Ranjit Kapadia expected the company to deliver superior performance because of its strong presence in the biopharma and insulin space, and good growth in its Syngene International (research services business).