Biocon - The ultimate biosimilars play!

Just wanted to deflate, a little bit,the excitement stemming from the favorable policy document on Trastu. Trastu’s commercialization can only happen in 2019 anyways. That being said, developed market approvals should hopefully speed up the pending emerging market approvals that are taking way too long.

I tried to put together a table highlighting the expected commercialization timelines of molecules filed / going to be filed this FY. The market size estimates are for the branded drug and will see some amount of deflation due to competitive pricing. My expectation from the limited number of precedents is about 15%-20% correction in the market size, but I guess it would vary from molecule to molecule depending on the competitive landscape. Could someone please fact check the data below? That would be really helpful for all in the forum.

Thanks

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“European composition of matter patents on Herceptin (trastuzumab) will expire in July 2014, and for US in June 2109” Sure. Revenue rings in 2019. But trastuzumab FDA approval today is a big step. It is a formal official conformation of BIOCON entry into biosimilar market. Expect rerating.

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Video link to the July 2013 ODAC meeting, for anyone that’s interested

https://collaboration.fda.gov/odac0717/?OWASP_CSRFTOKEN=60d13be68a8a1a362c664e31d696c95c490e033c219d2fb2b1c5f118c4f6ed9a&proto=true

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Recommend for approval unanimously. 16 - 0.

http://www.marketwatch.com/story/mylan-shares-rise-as-fda-advisors-recommend-breast-cancer-drug-approval-2017-07-13

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Does anyone know what is the revenue share agreement with Mylan? Till there is clarity on the same, difficult to build in exact revenues for the same?

Also, afaik, Mylan has exclusive rights in most key markets and biocon has co-exclusive rights for other markets - I am just fearing that it should not be the case where in the end Biocon gets meagre revenues eventually.

Disclosure: Invested

Not precise but these two are indicative that it is not seen as a meagre revenue:

May 2015 : Feature
Biocon entered into an agreement with Mylan in June 2009 to co-develop biosimilars of monoclonal antibodies and recombinant proteins; again, in February 2013, both companies agreed to co-develop generic insulin analogs.
Under the terms of the deal, Biocon and Mylan will have co-exclusivity in certain markets, such as India; and in other markets, where Mylan has exclusive commercialization rights, profits are shared by both the companies.
Biocon said it plans to spend about 8-9% of its biopharma sales, as its key biosimilar programmes recombinant human Insulin (rh-Insulin), insulin glargine and trastuzumab are in advanced clinical development in phase 3, and are likely to hit the developed markets of US and Europe by 2017-18.
Biocon expects to see its biosimilars contributing about $200 million by 2018-19.

JUNE 2016… INTERVIEW of KMS

What kind of opportunity do you see for this drug?
This particular product trastuzumab, which is otherwise known as under the brand name of Herceptin, commands a market size of close to $7 billion. We expect to be in the market by 2018-19.

How long does it take between final approvals and product release?
We will be submitting our dossiers for marketing authorisation very soon. It takes about 12-18 months for the review process and thereafter we get the marketing authorisation. We should be ready to enter the market soon after that.

What is your financial agreement with Mylan?
We have a profit-sharing arrangement with Mylan. That is what will see us earning pretty large revenues from this particular time frame that I mentioned.

Can you shed some colour on the competitive landscape as far as this cancer drug is concerned? What kind of opportunity are you looking at?
Mylan is the one which is going to pursue the commercial opportunity. We expect they will try and garner as much of the market as they can.
It is difficult at this point in time to really talk about market share in real terms.
But suffice to say, it is a large opportunity and given the fact that these are very expensive drugs and discounting can actually lead to good payer acceptance, the market size could be quite attractive for both companies. [ http://www.thehindubusinessline.com/companies/biocon-upbeat-on-new-cancer-drug-to-tap-7billion-market/article8697322.ece]

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KMS interview on CNBC today makes three points.

  1. Out of 2.6 Billion US market for Herceptin a big share is expected to come to Mylan-Biocon and
    Biocon’s share will be FAIR and SIGNIFICANT.
  2. In the EM’s the market is big, around 1 Billion Dollars.
  3. WHO has declared Trastu as ne of the drugs that they will procure. We all know that their procurement size is huge. And we are looking at that.

When I meant meagre, I meant in proportion to the size of the opportunity (in this case global sales post drug going off patent).

From the interview, no quantitative data can be inferred. With due respect to company and its efforts, I fail to understand why would company not disclose profit sharing arrangement - would only provide clarity to investors to build in a base case number.

Disclosure: Continue to remain invested

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  1. The commercialization in US and Europe is with Mylan. How accurately can BIOCON speak
    of the market share Mylan will capture.
  2. I would also like to know the profit sharing arrangement between BIOCON and MYLAN.

Fundamental query: If rights in US and EU are exclusively with Mylan, why do we keep talking about size of the opportunity in those markets and get excited? Will any revenue accrue to Biocon?

Pls excuse the naivety of the query.

Looks like you did not read the earlier messages. There is a profit sharing arrangement between Mylan and BIOCON for Europe and US though commercialization is with Mylan. That is why the Roche agreement is between Mylan and Roche. KMS would not put numbers on the profit sharing. She said it is FAIR and SIZEABLE chunk. And it is likely to reflect in 2017-18. I find it pleasing and exciting. Over and All.

Going with Mylan has been a good strategy of managing risk. Now that we are close to milestone, we are getting greedy thinking Biocon should have kept all the profit to itself (this includes me :grinning:) .Think of adverse scenarios.

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Biocon claims to be addressing a $60 Billion opportunity in the next 5 years. Assuming a very pessimistic scenario of Biocon capturing only $1 billion of this opportunity at the end of 5 years, it would give an additional earning of Rs. 30 per share at the current exchange rate of 63. Assuming a 15% earning growth for the current business EPS would double from 10 to 20 in the next 5 years. Total EPS at the end of 5 years would be 50 per share. Assuming a PE ratio of 20 gives a price of 1000, 25 PE gives a price of 1250, 30 PE gives price of 1500. Every additional $1Billion should add Rs. 30 to the EPS. This is a multi bagger for those who are willing to ride the journey with Biocon.

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Biocon results

Q1 Revenue at Rs 988 Cr reflected a decline of 4% due to the combined impact of
a stronger rupee, GST and the one-time positive impact in Q1FY17 on account of the
transition to IndAS.

Net R&D spends during the quarter stood at Rs. 58 Cr, an increase of 13% YoY. At a
Gross level, R&D spends in Q1FY18 were Rs 96 Cr largely on account of our Biologics
programs, including our Biosimilars and Novels. Staff costs rose 18% to Rs 193 Cr.

EBITDA for Q1 was Rs. 246 Cr. The decline of 19% was largely on account of inclusion
of Fixed and operational costs related to Malaysia in our P&L, post capitalisation of
this facility beginning this quarter, as well as, an increase in Staff costs. Adjusted for
the one-time impact from the transition to Ind AS in Q1FY17, EBITDA declined 9%.

Interest and depreciation costs increased 60% to Rs. 115 Cr for the quarter, largely
attributable to the Malaysia facility.

While EBITDA margin for the quarter stood at 25%, the core operating margin
(i.e. EBIDTA margin, net of licensing, impact of forex and R&D) remains healthy at 29%.

Net Profit for the quarter stood at Rs 81 Cr.

Thanks
Ashit

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Inspite of such poor results, the stock corrected by less than 3% implying that the market is waiting for the biosimilar triggers to playout.

  1. September: Target action date ( TAD) for Trastuzumab .
    This will most likely be positive, provided the FDA doesnt surprise with a warning letter based on March inspection. The management seem confident about their CAPA response to FDA form 483 and is infact expecting an establishment inspection report( EIR) that will clear the facility. The launch it self, in all likelihood , will be delayed beyond 2019 or come with riders (depends on the global settlement agrrement with Roche).

  2. October: TAD for pegfilgrastim.
    No Adcom (like for trastuzumab) planned for this prior to TAD.
    Previous three filings for this molecule by Apotex, Sandoz and most recently by Coherus were given complete response letters (CRL) by FDA signifying rejection.
    So I am not keeping my hopes high but a success here will cement Biocons reputation internationally.

  3. EMA inspection outcome for Malaysia facility done in March.
    The results are not yet out. If its positive , then atleast launch of glargine in Europe may not be delayed provided Malaysia facility caters to drug product also.

  4. EMA re-inspection outcome of Bangalore drug product facility.
    Management will be ready to seek reinspection by end of next quarter. Actual inspection will probably be delayed till early next year. So expect a positive outcome for Trastuzumab and pegfilgrastim only in later half of 2018.

Although the ANSM(EMA) GMP noncompliance document for Banglore drug product facility mentioned all three; trastuzumab, pegfilgrastim and glargine, the management clearly stated that they are not aware of any adverse observations regarding glargine drug product. Hopefuly this along with a positive malaysian GMP compliance may help with sticking to the timeline for European glargine launch.

A point of worry is glargine filing with FDA. Management till now was confident of filing in H1.This didnot materialize and now the management is refusing to give a timeline . I dont know if it is some technical issue or sign of something serious. A bad outcome here will be a bigblow considering that the Malaysian facility was supposed to cater primarily to US.

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Some aspects of result, the Malaysian plant and Biosimilars covered here:
http://economictimes.indiatimes.com/opinion/interviews/see-full-recovery-from-gst-impact-in-second-half-of-2017-arun-chandavarkar-biocon/articleshow/59806799.cms

Another 483 for a bangalore plant! This is getting more and more serious. The biggest problem is that the management is not disclosing these facts. The conference call mentioned that the Malaysian plant was inspected by EU authority and it looks like there were observations there too! While the management claims that there are “no material impact”, it appears to me that their timelines for biosimilar launches are going to be delayed. Also the fact that the current approved biosimilars are not doing too well also does not bode well for the company. Management has guided for a USD 1 billion in sales in FY 19. At exchange rate of 50 and 12% margins this is a PE of 10. I would value this at 200. Therefore the remaining price of 200 is for the biosimilar portfolio. Now the factors that could affect the remaining valuation are a. Price fall after biosimilars are approved b. Market share that Mylan is able to capture c. Profit Margins d. Biocon’s share of profits e. Ability of biocon to get the biosimilars approved f. Approval status of the manufacturing plants g. Settlement / Litigation status of Mylan with the innovators. My guess in these aspects could be as good as yours. But I am worried that Biocon is not doing too well in the things it can control now - f and as a result of it e.

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Excerpt from Mylan Q2 2017 earning call transcript

Regarding delay in glargine filing with FDA

From the US commercial manufacturing strategy point of view, we have decided to include the manufacturing site variations from Bangalore to Malaysia up front in the application rather than as a post-approval change. We are meeting with the FDA very shortly to reach agreement regarding their expectation in this regard for the US filing.

Regarding Pegfilgrastim (Neulasta)

We continue to work with FDA on the science as well as on the GMP front. And as you know, we have not factored in any revenues even in 2018 in any meaningful way from biosimilars. But if there is one upside which I can see from biosimilars and where how the competitive landscape is lining up between other different players who are ahead of us, Neulasta might be the one. But we’ll give you more visibility as we go along.

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http://www.bseindia.com/xml-data/corpfiling/AttachLive/e57419f7-1555-4ff6-baa6-dbe1f0afa232.pdf

Biocon withdraws EMA dossiers.