Biocon - The ultimate biosimilars play!

If you scroll up, there is discussion on IPO versus demerger of Biologics. The question you asked is also in top of many who invested in Biocon for a long time now.

If I consider around first Jan 2017 to today
roughly 160 to 450 in four years is 29.5%CAGR

If I consider my rough CAGR in five years is 41%
Frankly speaking never expected this much initially
By any standard it’s good return (in between line probably one can say some pharma stock are 2.5 times in 3 months , good luck to them)

Now come to total gross block and capital work in progress
In 2017 it was 6270 CR
In 2020 it’s 11343 CR
(Kindly compare this data with other pharma companies)

Biosimilars business require lot’s of investment and luckily market participants are forward looking for this business so hopefully our investment will be appreciated in future also
And like to add that This is not just like few ANDA opportunity it’s multi-year (chronic disease) large opportunity with good margin

Even in AGM also questions asked about BioconBiologic listings but it’s atleast 2 years away and management given assurance that they will do what is best for future business and shareholders


Thanks for putting up this information. I feel missed out on pharma rally since march-20 as Biocon has been lagging in upmove. In any case I am now going to hold on to my position and see what’s in store until Biologics is listed.


Biocon has been part of portfolio for 10 years now. I have held on because they have walked the talk. I believe they have huge opportunity and runway ahead.
Shareholders got fairly rewarded in syngene ipo as not many applied.
Both Biocon and syngene I believe have done well till now and hopefully shall deliver in future too.


Key summary of Q2 results of Biocon - Soucre: IndiaInfoline

Biocon reported an increase of 11.33% in top line sales for the Sep-20 quarter at Rs1744.80 Cr on a yoy basis. The operating profits for the quarter ended Sep-20 were down by 21.2% at Rs 213.70 Cr while the net profits were down by 23.8% at Rs 200.40 Cr.

This had a logical impact on the margins of the company. For the Sep-20 quarter, the operating profit margins or OPM was sharply lower by over 500 bps at 12.25% while the net profit margins or NPM for the quarter was down at 11.49% due to sharply higher raw material cost in the Sep-20 quarter due to supply chain disruptions.

Financial highlights for Sep-20 compared yoy and sequentially

Particulars Sep-20 Quarter Growth (yoy) Growth (qoq)
Total Revenues Rs1,744.80cr +11.33% +4.40%
Operating Profit Rs213.70cr -21.20% -13.31%
Net Profits Rs200.40cr -23.86% +16.92%
Key Ratios Sep-20 Quarter Sep-19 Quarter Jun-20 Quarter
Diluted EPS Rs1.41 Rs0.84 Rs1.25
Operating Margins 12.25% 12.56% 14.75%
Net Profit Margin 11.49% 19.09% 10.26%

Key takeaways from the Sep-20 quarter results

  • The net cash generated from operations nearly halved to Rs209cr for the first half of the fiscal year ended on 30 September 2020. This was due to unfavourable movements in the trade receivables and the inventories in the first half of this year.

  • Biosimilars are the single biggest revenue source for the company in the Sep-20 quarter followed by generics and research services. Bio similars account for 38% of the total revenues, Generics accounted for 33% of the revenues.

  • The company is in the forefront of research into a possible COVID vaccine as also it has tied up for manufacture and distribution of Remdesivir. This could present a big opportunity for Biocon in the coming quarters.


Here are my notes from the conference call

  • Biosimilar business
    o Performance below par because of operational and logistical issues (11% YOY growth); Expect recovery in Q3 and Q4; Current sales split is 50-50 b/w developed and emerging markets; Large amount of emerging market biosimilar business comes from government tenders, however B2C business offers better prices; Biocon is active in both (tender + B2C)
    o Want to be vertically integrated to be price competitive but this requires a lot of upfront investments
    o Insulin glargine (semglee) launched in US market at 65% discount to innovator price; launched in Spain (third largest in terms of value in Europe); applied for interchangeability status in US
    o Abbreviated pathways will allow competitors to come in earlier because of the lower upfront investment requirements
    o Maintaining market share of 15% in Pegfilgrastim up to FY20Q2 (gone to 17.5% as on last week)
    o Market share of 6% in Trastuzumab (and 10% in 420 mg) upto FY20Q2 (gone up to 7.8% as on last week)
    o Target action date for Bevacizumab might move from December 2020 depending on FDA’s ability to visit the facility
    o See more aggressive price based competition in biosimilars in Europe
    o Interchangeability: For the $1bn target, not banking on interchangeability (I am highly sceptical of this)
  • Novel biologics business
    o Equillium got a positive remark from FDA for itolizumab and will initiate a global phase III trial in Q4CY2020. Biocon initiated a Phase III trial in India in September for itolizumab; Indian revenues for itolizumab is booked under Biocon Biologics (exports for itolizumab will start in the end of FY21)
  • Generics business
    o gCopaxone: Will file back a response to CRL in the next few months (by next quarter), since it’s a major CRL it will take FDA about a year to review
    o Generics business cumulative CAPEX will be 2000 cr. in next 3 years
     Greenfield Vizag plant: phase I commissioned (small unit); larger immunosuppressant facility is under construction and will be commissioned physically by CY22 (investing 600 cr.)
     Looking to do CAPEX in injectable facility (location not finalized yet), work will start in CY21
     Constructing a peptide API facility in Bangalore, will take 2 years to be commissioned
     Large synthetic block coming in Hyderabad, construction will start in CY21
    o Biologics business:
     Gross fixed asset is $450mn, net block is $200mn; Investing heavily in CAPEX as expecting revenues to scale to $1bn; Large monoclonal antibody plant will come commercial in FY23. Asset block will go to $1bn ($400mn of cash will go into these facilities over the next 4 years until FY24; $200mn already spent)
  • Reduction in EBITDA margins is because of higher forex losses (over gains last year), high employee and R&D costs; Core EBITDA margins (net of licensing, forex losses and R&D) stood at 32% vs 33% last year
  • Malaysia plant is now at break-even level

Disclosure: Invested (position size here)


While most of data points are covered by fellow VPers, Some additional inferences from quarterly call

  1. Most of Questions centered around biosimilar performance in short term( slow revenue growth, margins being bit low and bit lumpy,competitive landscape and pricing pressure, Capex and so on).

  2. Very few long term and strategy related questions.

  3. Growing concerns around performance consistency and predictability, and mgmt responses being not very reassuring & more subjective

  4. At current valuations, neither revenue or bottomline are catching up. Capex heaviness.

  5. Mgmt ommentary optimist as usual, good part logistics challenges acknowledged being worked on to address top line issues, admitted demand and supply both intact.

  6. Capex heavy future outlook - counting on PE money, IPO proceeds and cash generated - first two doing hevaylifting

  7. All three biz lines ( Syngene, generic and formulations, biosimilar) at give or take $100m qtrly run rate in near future( missed how soon part) , appears best case in next few qtrs to get market reassured. Heard one response on those lines.

  8. Further acknowledged that first movers in biosimilar tend to get advantages and future will see lot more new entrants getting in - is the best phase on pricing power and quick mkt share gains getting over soon?

  9. Unless they are always ahead of market curve by investing heavily on future pipelines etc. I.e. volume will drive value and competitive intensity will drive price( far from generic type pricing destruction but there were already questions on 60-70% type discount from innovator pricing for biosimilar)

  10. Management acknowledged on working on equitable treatment for biocon shareholders on Biocon biological listing.


  1. Performance need to catch up with expectations and valuations, need to be more consistent and less uncertain. Next 1-2 Qtr imp.
  2. Mgmt quality is excellent, sector has tailwind , some sort of moat/differentiation in 2 businesse lines( biosimilar and syngene)
  3. More misses few surprises as of now , given mkt opportunity, sector and mgmt quality - one of the best place to be in but doubt high value generation in near future.
  4. Key near term triggers - Samalgee success, PE funding at higher valuations, achieving consistency in top line growth, IPO prep n valuations with intent to reward existing shareholders , Equillium success in novel biologics

Invested, top 5 in PF


The company announced their third fund raise in biologics division.

- Fundraising sequencing
o 06-01-2020: $75 mn for 2.44% equity stake with True North fund (valuation: $3.07 bn)
o 31-07-2020: $30 mn for 0.85% equity stake with Tata Capital Growth Fund (valuation: $3.53 bn); For $30mn (at exchange rate: 75), they were allotted 88’30’456 shares of Biocon Biologics at price of 254.8 (Biocon holds 95.25% stake)
o 07-11-2020: $150 mn (1125 cr.) for 3.8% equity stake with Goldman Sachs India AIF Scheme-1 (valuation: $3.94 bn); Exchange rate: 75;

Trailing twelve month sales for their biologics division is ~2389 cr.; Goldman valued them at 29’550 cr. (EV/sales ~ 12.36). Post this transaction, Biocon will hold 95.25-3.8% ~ 91.45% of stake in Biocon Biologics (EV ~ 27’000 cr.). This makes the EV of rest of business (Syngene + Generics) ~ 24’000 cr. Removing syngene’s valuation (~15’173 cr.), the generics business is valued at ~8’800 cr. (close to 4x EV/sales).

Disclosure: Invested (position size mentioned above)


Good development and timing, if memory serves right they sort of indicated $300m type fund raising before IPO, Above 3 rounds takes it closer to that mark. Given sector tailwind, avoid any Policy setbacks by new US government, it makes sense to not to delay beyond H1 21.

Syngene being richly valued and for right reasons , wonder what is the upside left for current investors by the time of listing or there about, even if we take a 25% growth at consol level over year - that much incremental value would be balancing out holding company discount for Biocon.

Would be interesting to see minority shareholders treatment.


Biocon Biologics signs MoU with CSSC in Tanzania for Mission 10 Cents

Biocon Biologics, an integrated ‘pure play’ biosimilar company and a subsidiary of Biocon, in continuation of its Mission 10 cents affordable insulins program for low- and middle-income countries (LMICs), has signed a Memorandum of Understanding (MoU) with the Christian Social Services Commission (CSSC), a faith-based organization active in Africa. CSSC works closely with the government as well as international and national partners to facilitate health and education
services. Tanzania will be the first country in Africa that will benefit from this collaboration between Biocon Biologics and CSSC. Biocon Biologics is helping unlock universal access to quality insulins in low- and middle income countries(LMICs) by making recombinant human insulin (rh-insulin) available for less than 10 US cents per day as a part of its ‘Mission 10 cents’ program. Besides improving access to insulin treatment by making affordable yet high quality insulin available, Biocon Biologics is working with local partners to help strengthen overall healthcare capacity with the aim of supporting all people with diabetes in LMICs, where diabetes prevalence has been rising more rapidly than in high income countries.


Inspection of Bevacizumab manufacturing facility is delayed.

1 Like

An Indian company, Biocon, is also working on oral insulin, but unlike Oramed it has not started advanced trials with the FDA, which is seen as the main path to the international market.

1 Like

ADQ invests 550cr for 1.80% stake in Biocon biologics. Valuing biologics segment at $4.17B.
In November 2020, Goldman sachs valued biologics division at $3.94B

Biocon launched tacrolimus capsules in US.


Press release on Bicon Q3FY21 Results
Biosimilar segment witnessing improved interest from investors. It is valued at Rs 30420 cr and Investment on Syngene with holding co discount of 50% valued at 8400 cr (Mkt Cap). Balance segment (API & Formulations) with the revenue of 4400+ crores is available at the market cap of 14000 crores.

Disc: Invested



Here are my takeaways from the last conference call.

  • Biosimilar business
    o Insulin glargine (semglee) market share in US is still below 1%: It’s a formulary driven business and Biocon is trying to get its drug on the formulary list; Ramp up will happen next fiscal onwards
    o Muted performance because of operational issues; CEO of biologics unit removed probably because of muted performance of biologics division; hospital patient visitation has gone down because of COVID
    o Approval of Bevacizumab delayed because of FDA’s inability to travel to their site
    o $1bn revenue target for biologics by FY22 will be revised not because of regulatory (US + EU) market growth but because of lackluster performance in developing markets where strategy needs to be revised; hints that the revenue target maybe delayed by 1 year
    o Lot of emerging markets are tender driven which were adversely affected by COVID; Instead of new tenders being floated, a lot of older tender contracts were extended
    o Price erosion in biosimilars is close to 10% every quarter in US (according to Nitya Balasubramanian; IMS data): Biocon has already accounted for these in their projections
    o 3 of their biosimilars is close to entering clinical trials
    o Dilution in biologics unit will go down to ~75% during IPO; will be similar to how Syngene was handled
  • Generics business
    o gCopaxone: Will respond to the CRL in the next few months
    o For the 3 statin products, market share is between 20-50% in US

Disclosure: Invested (position size here)


Q3 call - key take aways around misses.


  • 1Bn rev target had meaningful dependency in developing countries contributions( 60:40 for developed vs RoW), that part is lagging and a key strategic approach difference leading to exit of current CEO.( my inferences)

  • Risk due to sudden exit of CEO on strategy and org design as well as execution risks - Arun and Kiran being seasoned, there is no transition risk and continuity is assured.

  • How will growth strategy work- It sounded like between both of them ( Arun and Kiran) rest of world will get higher focus which was not happening till now and gap for aspirations of 1B rev targets - this makes sense as Mylan and Sandoz are driving Developed mkt growth, that means real heavy lifting from Biocon needed on RoW.

  • Biosimilar margin should show uptick as Most of Capex for medium term us over, only Malaysia plant ph2 expansion was called out for. This IMO is something that will partly give mkt what they are nervous about.

  • Although they missed 1B Target and IPO timeliness are also pushed - they were not in denial and attributed execution( RM, transport, RoW focus) issues as well mkt dynamics challenges ( tender delays in RoW mkt, FDA delays in inspection for Bevacizumab) - what is assuring is that now Kiran has put her neck on line to make it happen rather than hiring - there is always difference in promoter driving operations vs hired folks - they have called out 2YRS for new leadership - which would be where both 1B and IPO will converge - again a hypothesis.

Not much to Say about Syngene - firing on all cylinders and delivering,

  • 90 new employees added in Hyd facility - at $60K/ yr - revenue to follow

  • Mangalore facility operating leverage to playout over next 10+ yrs

Generics -

  • Api vs formulations, 80 pc from API, 20 from formulations.

  • H1 was good as customers piled up, API rev came down in line now

*formulations some launch delays on FDA visit, formulations key growth driver for this group going forward,

  • API growth from immune capacity in vizag to come in once ready

  • mgmt focus has been Biosimilar, going forward this segment to get some more focus - this was not clear - maybe they meant increasing formulations contributions in mix

All in all - Lot of expectations were baked in high prices- short term there is pain - choice is to either trust mgmt and give few more quarters or log out and come back in on signs of green shots. Call was reassuring to some extent but on thin rope now.

Invested as part of core PF( biocon and syngene), for Biocon there is technical support around 370- 390 range, need to watch out. Syngene story intact.


Arun Chandavarkar was the earlier CEO of Biocon for many years. From my discussions with those that work at Biocon, Christiane was not a popular CEO. So this is not a major factor

If Biologics IPO gets same treatment as Syngene, then it means Biocon shareholders who have incubated the business all this while, will lose out…no proportionate shares like in a demerger + Biocon becomes holding co. only solace - IPO pushed out

1 Like