@rks00, a wonderful thread - you have really analysed Bicon in detail. Pls continue the good work.
But leading brokerages like CLSA, MOSL & IndiaNivesh are negative on the stock, which is a worry for a small and uninformed investor like me. However, all these brokerages have either not given much weightage to Biosimilars or have opined that the opportunity is quite distant. Sharing the link just for info, without any value addition, though.
I guess it’s diversity of opinion that makes the market, so no views on them. The only thing that I would say is that the people that work for the organizations you mentioned are in all likelihood a billion times better at security and business analysis than I am, so it may serve you well to take everything I have written about Biocon in my initial thesis with a grain of salt and for each to do their own homework and arrive at their own unbiased conclusion. I have arrived at mine, and a lot of very highly reputable people have taken a contrary stand. I would agree to disagree with them is all I can say 
I am meeting a person who is well versed with the Pharma industry this weekend. So I am hoping to get some “scuttlebutt” on Pharma in general & Biocon in particular. Are there any specific question that I should ask ?
Couple of things I have in mind
Anything else to ask. Will share if there is any useful info that I can glean.
@pchan, Scuttlebutt can be harmful for your financial health sometimes. I did same for Bajaj Finance with a finance expert and sold off my stocks after it doubled. It went on to become 50 bagger from there.
Hi @rks00,Excellent write up on Bicon,quite impressing and thanks for opening this thread.Just a basic question on Biocon’s valuation.
Biocon’s current market cap is close to Rs.13,000 crores
and Syngene’s market cap is Rs.7500 crore at its current market price .So the combined value of both companies is close to Rs.20,000 crores.
Even though Syngene is listed separately now,why does it include Syngene’s sales as part of Biocon’s consolidated sales? Is it because syngene still part of Biocon? It confuses me a lot.
If we exclude syngene’s sales,Biocon’s total sales for 2016 will be Rs.2400 crores.Now to achieve $1 billion in 3-5 years,it has to grow sales at 25% CAGR from here.So,just wondering if i need to include syngene or exclude it.
That’s not how it works, you cannot randomly add market caps etc. Please take the time to read Biocon s Annual report & listen to their conference calls. All your questions will be answered.
Hi Sambath
I think under Indian GAAP a company has to show consolidated p&l and balance sheet. Intercompany transactions are cancelled. From the consolidated results the company also removes minority interests, ie, percentage of sysgene held by others
If the equity is below 25pc (have to check exact percent) then they are allowed to consolidate based on equity method
Market cap however should not be consolidated
I have not seen the annual report but I think they are required to show both individual and consolidated performance
Within market capitalisation of biocon is included the capitalisation of syagene hence you don’t double add them but adding both the market caps, if it makes sense or else you will count capitalisation twice
@rks00, @Advait_6270
There is flurry of 1x1 conference calls with reputed institutions (Citi, Aberdeen, Arohi, Templeton, Rcap, IIFL, Jupiter)
during the last ten days.
Is there any transcript recorded for these calls also. If so will be interesting to know.
Don’t think so Sks, couldn’t find any at least. Thanks for the heads up though. Appreciate it,
Very insightful interview of kiran shaw highlighting products , potential and strategies. After Japan, they got approval in Mexico also (not sure if that was known earlier , at least I did not know), expecting approvals in other Latin countries. Management is turning out very confident. Expecting more positive research reports based on recent concall. All the best biocon investors. @rks00
(Invested: views may be biased)
Very confident management about next steps. If Market starts discounting US approvals of 2018 we may see stock price hitting 4 digits in 2017.
Heritage trial: A phase 3 safety and efficacy trial of the proposed trastuzumab biosimilar Myl-1401O versus Herceptin. This study found Biocon-Mylan biosimilar drug (marketed in India as Canmab) comparable to Roche cancer medicine Herceptin and met all primary end points. Presented in the American society of clinical oncology June 2016 annual meeting (Worlds most prestigious conference related to cancer).
INSTRIDE 1 and 2: Phase 3 study comparing biosimilar Insulin glargine (marketed as Basalog in India) vs innovator drug Lantus (Sanofi) in type 1 and 2 diabetes. Study completion date June 2016.
Phase 3 study Myl-1401A, Biocon-Mylan biosimilar adalimumab vs innovator drug Humira (AbbVie) in psoriasis : Study completion date November 2016
Phase 3 study Myl-1401H Biocon-Mylan biosimilar pegfilgrastim vs innovator drug Neulasta (Amgen). This study was completed in February 2016.
I couldn’t find the results of this study in any journal or conference proceedings. In the Q 4, 2016 conference call transcript of Biocon, the management has clarified that the study had met primary end points and the company will be filing in 2017.
According to me the next key events will be the results of INSTRIDE 1and 2 trial in June and Adalimumab trial in November 2016.
Insulin glargine and pegfilgrastim seems to have cleared the Phase 3 trial and is well on their way for filing.
I found the book and the following links useful in understanding biocon and the opportunity it is presenting.
Mythbreaker: Kiran Mazumdar-Shaw and the Story of Indian Biotech. Hardcover – 29 Apr 2016 by Seema Singh (Author). http://www.amazon.in/Mythbreaker-Kiran-Mazumdar-Shaw-Indian-Biotech/dp/9351778398/ref=sr_1_1?ie=UTF8&qid=1465029423&sr=8-1&keywords=kiran+mazumdar+shaw
http://www.dvfa.de/fileadmin/downloads/Publikationen/Fachbuecher/dvfa_biosimilars_2010.pdf
ET report related to positive trial of trastu.
See interview of Mrs. Shaw after news of phase III success of bio-similar of trastuzumab here, cancer drug.
Roche income from drug was $6.5b. What is the potential upside of Biocon?
Kiran says emerging market is the opportunity they are pursuing and biologic is the star performer of this quarter. Looks like v were not giving too much importance to emerging markets while focusing on Europe USA and Japan. Can this be an additional value driver? Analysis by @rks00 and many others has been very useful. Will be useful if investors with better undersnding post an update since the stock has run up 100 %. Analogy with celltrion indicates in the morgan stanley report (available in link) that story just started.
You’re right Sharmasks, select emerging markets read Brazil, Russia etc could be profitable because of the size of the market. The reason I didn’t give EMs too much importance are two fold
Source - https://www.innocentive.com/files/cost-benefit_analysis_of_insulin_analogs.pdf
In general, its comparatively difficult to analyze/understand a company which has multiple moving parts, more so if company is testing waters in uncharted territory amidst hazy regulatory requirements. Personally for me, decoding (or rather call it, building a reasonable understanding) Biocon has been such learning experience.
Why I got interested on Biocon? Answer is, It ‘appears’ to have LONG AND WIDE RAMP. (till ~2 months back when I stared studying Biocon closely it still had the wide ramp i.e. Margin of safety).
Lets see if factually this has a long ramp or not and how long, even if it is. Here is my 5 step funnel approach study findings on Biocon:
I have reviewed the P&L, BS and cash flows closely to evaluate most of the growth, stability, efficiency metric etc. in intrest of time and effort have quoted just handful of them with conclusive commentary below:
Revenue Growth:
Operating Income Growth %
99.04% 
EPS Growth %
Positives: FY’16 had improved operating margin of 34.7% as against 19.6% for FY’15, primarily on account of lower ‘other expenditure’. Company also has good liquidity (current, quick ration etc.). Book value of 185.00 Rs.
Concern/observations: Biggest drag with Biocon is that it is into moon shot projects with extensive CAPEX requirements. For last 3 years the capex/sales has been into ~28%. As a result reasonable operational cash flow (~>50% of net income) but negative FCF year after year. Other concerns that I have noticed are high financial leverage, high DSO, high inventory (dont know what kind of inventory they carry for this kind of business).
Conclusion: Company financials looks ‘averagely OK’ (with the important context that they are into moon shot projects). So, in that context, its worth the effort to understand the product/market proposition in tandem.
As mentioned at the very beginning, Biocon has few moving parts, and pretty complex because they are into domain/knowledge extensive business. I am not from the correct background to understand all of this and may not be in a position to interpret the direct financial implications, yet have tried my best. So essentially, one need to understand these 4 independent moving parts to understand Biocon well:
LOB #1:Small Molecules (API and generic formulations): Approx 42% of the revenue, Q1Fy17 sales must be around 438 Cr.
APIs like statins, immuno suppressants and specialty APIs and also includes generic formulations business. The management has guided for mid to high single digit growth for small molecules. In FY16 Biocon acquired the business assets of the pharmaceutical manufacturing unit of M/s. Acacia Lifesciences Private Limited located at Vishakhapatnam, a step towards vertical integration in potent oncology APIs and generic formulations. Core therapeutic segments – Metabolics, Oncology, Auto-immune indications. Initiated construction of Biocon’s first oral solid dosage facility located in Bangalore to support our future generic filings with capex of US$25mn. Estimated completion FY 2017.
Have filled 7/8 ANDAs aroud complex generics and injectables. expected to have 20/25 ANDA in 2 -3 years.
LOB#2: Research Services (Syngen): Approx 31% of the revenue, Q1Fy17 sales was 263 Cr. Up 17.4% YoY.
Syngene is the contract research organisation (CRO) arm of Biocon with proven capabilities. The company provides end-to-end discovery and development services for novel molecular entities (NMEs) across industrial sectors including pharmaceutical, biotechnology, agrochemicals, consumer health, animal health, cosmetic and nutrition companies. The company caters to 256 clients including eight out of global top 10 global players. Consistent growth of 20%+. has multi-year contracts with its clients, including three long-duration multidisciplinary partnerships with Bristol-Myers Squibb (BMS), Abbott Laboratories (Singapore) and Baxter International. Strong track record of top-line growth with best in class EBITDA (~30+%) and Net Income (high teens).
Key risk is client concentration: Total clients increased from little over 100 in FY12 to over 250 in FY16. Drisk approach: 69% of FY16 revenue from top 10 customers compared to 79% in FY12 (still high though).
LOB#3: Branded Formulation: 15% of total revenue, Q1Fy17 sales was 158 Cr. Up 41.1% YoY.
Formulations Business in India, nearby countries & Middle East. Indian + UAE. Biocon owns 80+ brands ecompassing therapies like diabetology, oncology, nephrology, cardiology, immunotherapy, comprehensive care and bio-products. Some of its unique launches are INSUPen (insulin delivery device), Biomab (novel biologic for oncology) and Alzumab (novel biologic for Psoriasis). The pipeline includes CANMAb (biosimilar version of oncology product Herceptin).
```Risk: Total ~20-25% of the branded formulation portfolio in the domestic market is currently under NLEM. Also, in general, I feel that they are me-too players only in the market basis market share data. Dont see/hear much of commentary around this section, so possibly they continue with it but may not have aggressive plans here`
LOB#4: BioSimilar/Biological: approx 12% contribution to revenue, Q1Fy17 sales was 123 Cr. Up 70.8% YoY. Well this is the segment which is creating a view (real or illusion) about having a real LONG RAMP. They are into tow things a)Insuline, b) mABs and Biosimilar:
1. Insuline: primarily into 4 Insulin. Except Rh Insuline they have partnership with Mylan where Mylan has exclusivity in US, Canada, Europe, Australia & New Zealand. Details of the 4 Insuline are:
1.1.Rh Insuline (Recombinant Human Insulin): market size USD 3.1b:
The company has launched Insulin Glargine and Rh-Insulin in some emerging markets in LatAm and AFMET regions in Q1FY17. BIOS has already done clinical trials till phase III for vials for EU market. However, BIOS would have to redo the trials for US market using US reference product and hence work related to EU trials would not be part of work to be done for US market. registered in 60 emerging markets. No visible competition . Marketing tie-up Laboratorios PiSA (PISA) for generic Rh‐Insulin for US market. Given the market size of US$2bn of rh‐Insulin in US and only two player market, the opportunity remains interesting for Biocon (BIOS). Commercializaiton by 2020.
1.2. Glargine/BASALOG (Long Acting Basal Insulin):market size 8. bl USD.
Global phase 3 trial, filling planned in FY17. In Japan FujiFilm Pharma (FFP) has launched in July. Filling agreemnt for EU and US will file via 505(b)2 NDA (new drug application. Registered in 20 emerging markets. Competion from Samsung, Eli Lilly (who has approval in Japan, EU and US. Launched in Japan & EU. Expected to launch in Dec’16 in US). Marketing partnership with Mylan where Mylan has exclusivity in US, Canada, Europe, Australia & New Zealand.
1.3. Aspart (Rapid Acting Insulin Analog): market size is 4.7 billion USD:
Preclinical/Scale Up. No visible competition
1.4. Lispor (Rapid Acting Insulin Analog): market size is 2.8 billion USD:
Preclinical/Scale Up. Sanofi in phase 3 trials
2 .mABs and Biosimilar: Broadly 6 bio-similars. Key thing to notice here is that they have marketing partnership with Mylan. Mylan Exclusive Commercialization Regions is developed markets. Deal Structure: Upfront Payment + Cost Sharing + Supplies + Profit Sharing in developed markets. Further details around the 6 biosimilars are:
2.1.Adalimumab (Chronic Plaque Psoriasis): Market size 14 billion USD:
Global phase 3 trial, filling planned in FY17. competitors at almost same stage are Amgen, Samsung, Sandoz, Boehringer Ingelheim, Coherus, Fuji Kirin, Momenta-Baxalta, Pfizer, Merck Serono. Samsung has completed Clinical trial (CT) in Nov’15.
2.2.Trastuzumab/CANMab (metastatic Breast Cancer):market size 6.8 billion USD):
Global phase 3 trial, filling planned in FY17. Strong sales growth in EU. Launched in Indian in FY’14. competitor s at almost same stage are Celltrion, Amgen, Pfizer, Samsung.
2.3.Pegfilgrastim (Chemo-induced Neutropenia): market size 4.7 billion USD:
Global phase 3 trial, filling planned in FY17. European Medicines Agency (EMA) has accepted Biocon’s partner Mylan’s marketing authorization application (MAA) for its proposed biosimilar Pegfilgrastim for review. expects approval in the next 12-18 months.competitors at same stage are Sandoz, Apotex, Coherus, Richter.
2.4. Bevacizumab (mColorectal Cancer): market size 6.9 billion USD):
Global Phase 1, RoW Phase 3. Companies in phase 3 are Amgen, Boehringer Ingelheim, Pfizer, Samsung
2.5. Filgrastim (Chemo-induced Neutropenia): market size 1 billion USD):
Preclinical/Scale Up. Competitors at par are Sandoz**, Apotex, Multiple approvals in EU (Teva, Hospira (Pfizer), Stada, Accord etc.)
2.6. Etanercept (Auto-immune): market size 8.7 billion USD:
Preclinical/Scale Up. Companies at phase 3 are Samsung, Sandoz, Coherus-Baxalta.
Well…so far I have shared the work on my 2 funnels to evaluate Biocon. Will try to cover the other (competition landscape, MQ, MoS) in coming days (weekends are the only days that I have got 
)
Before I conclude, let me revisit my initial question, do they have a real long ramp (~60 billion USD+ ahead of them)? My answer so far is, well UNFORTUNATELY NO…(will try delving on that in details in subsequent posts).
For now, others are welcome to join-in into this discovery journey to add some of the insights specifically around the 2 funnels that I have used (financials and product proposition).
Disclaimer:
Thanks,
Tarun
CEO’s recent blog may be a useful source.
Morgan Stanley came out with a comprehensive report.
They were the only analysts who seem to got is right. Don’t trust average analysts to justice to complex pharma companies.
Disclosure: Holding it for last 9 years