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:
First funnel: Data Door/Financials:
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:
* Year over Year Growth: 12.8%
* 3-Year Average Growth: 11.93%
Operating Income Growth %
* Year over Year Growth:
* 3-Year Average Growth: 43.98%
EPS Growth %
* Year over Year Growth: 80.18%
* 3-Year Average Growth: 20.28%
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.
Second Funnel: Product/market proposition:
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).
1. No investment on Biocon,Syngen.
2. Still learning...
3. This info has been collated for personal consumption from different sources (institutional reports from ICICI, Axis, MOFS, investor presentation, annual reports and other sources available in public domain. I HAVE NOT verified the correctness of all.