Biocon - The ultimate biosimilars play!

Covid is having an impact on all aspects of Biocon business, there is no doubt about that. I am surprised that Biologics have managed to grow at 11%. Most cancer treatments are postponed if the treatment is not urgent/lifesaving and this is having an impact on biocon, that is for sure

Share price has corrected by 20%. Market is overreacting to a temporary covid-related slow down, it is not going to last forever…

Discl - very biased, bought more today

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A graphic from The Ken’s report

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Isn’t Biocon a massively undervalued business just on the basis of relative valuations.

The company owns above 70% of Syngene and above 90% of Biologics business. Just the sum of valuations of those two is more than its entire current market cap.

Why is it that the market has discounted the business to this extent?

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First Salvo fired after Mgmt changes, this partnership gives biocon a preferred access and act as an influencer channel for MoW goals( Primarily Aftica and Asia). Biocon biologics $1B ambition has 40% coming from MoW countries.

Biocon Biologics to offer its Oncology Biosimilars through Cancer Access Partnership in over 30 countries, Will enable access to T

Simple SOTP valuation won’t apply here due to holding company discount applicable for Syngene & BBIL ownership in Biocon. Sometimes the discount can be huge & sometimes it can be less but generally 50-60 % is fair to assume. This holding company discount also came up in the L&T thread earlier.

Holding company discount is not purely applicable for Biocon as Biocon will have substantial core business even after divesting Biologics… Even Kiran Shaw talked about this too in her interviews… its like L&T, M&M, SBI, HDFC… which have valuable subsidiaries while having their own strong core businesses…

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Exactly, holding company discount is applicable for firms like Berkshire and Tata Sons. These firms are just holding companies. Also, holding company discounts are usually applied to conglomerates with businesses in diverse sectors (like Tata Sons) and the discount stems from the logic that conglomerates are poor allocators of capital as they have business interests in many different sectors.

None of the above play out in case of Biocon. Biocon’s holding in Syngene and Biologics is still focused on pharma industry and Biocon still has substantial business of its own generating postive cash flows even if you take out Syngene and Biologics.

As Syngene starts making money, the flows will translate to Biocon’s EPS and that should significantly re rate the stocks PE.

I agree with the views @Tar but in this case I also feel that Syngene will grow better in view of the operationalisation of Mangalore unit.

Syngene definitely will grow faster but it’s revenues should translate towards consolidated balance sheet and PnL for Biocon since it holds a majority stake in Synegne.

My reason for investing in Biocon was mainly for their Biologics portfolio. The moment Biologics is listed I will sell Biocon and move my investment into that.

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This is going to be a common action by many investors, which will increase the discount as we approach the IPO. Also, directly owning Syngene & Biocon Biologics has advantages as you can allocate weights to both these companies based on your conviction. In the holdco there will be a fixed proportion of both companies.

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Holding company discounts are always present. In the cases where the holding companies are in the same sector discount remains less but it never is zero. According to a report, the lowest discount in Indian scenario is present in HDFC (25%) where all the subsidiaries are in financial sector and the company is renowned for efficient capital allocation.

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Based on the discussion here it seems like a prudent way to invest in Biocon is to allocate evenly between Biocon and Syngene. Even allocation should capture the close to true growth rate in the company as a whole.

Thoughts?

Hello,

I think one can look at what is happening with regard to biologicals in India and extrapolate it to ROW.
I will use Trastuzumab as an example.

Biocon was first to launch Trastuzumab generic in India in 2014 and at that time, it was priced just 15% below innovator. Now, many companies make Trastuzumab and hence, there is severe price erosion - to the tune of 60 - 70%.

Another phenomenon which has happened in India is launch of government sponsored health schemes - this has led to increase in volumes, but organization of practice - ie rather than scattered practices and hence drug usage, institutionalization of practice and tender based drug procurement.

It is pertinent to ask the management about their market share in India for Trastuzumab. As per my knowledge, there is tough price war and Reliance is grabbing progressively larger share of tender based procurement.

Since i am related to Oncology field, i can talk about products related to Oncology ie, Trastuzumab, Bevacizumab, Filgrastim, Peg-Filgrastim etc.

Although Biocon was very early in the race, US and EU regulatory pathways for approval of Biologicals took long time to get established and approve the first product. But once the pathways got established, it became easier to get approved as happens with chemical based generic pharma.

It is not that Biocon may not create wealth. However, IMHO, it faces an uphill task with progressive commoditization.

I am attaching two articles to emphasize the point that Biosimilars is an extremely competitive market in USA - the most lucrative pharma market in the World.

  1. An article about Pfizer biosimilar revenues dated 3rd February 2021 where there is competitive landscape / Market share data of Rituximab and Trastuzumab for H1 2020 which may be useful.
    https://www.centerforbiosimilars.com/view/pfizer-biosimilar-revenues-top-525-million-in-fourth-quarter-2020

  2. Another article is about the threat of innovation to biosimilar story -
    Coherus Biosciences had 20% market share in PegFilgrastim before it got disrupted by launch of Onpro - An on body injector by Amgen
    It also mentions launch of Pegfilgrastim biosimilar by Pfizer in December 2020 - indicating more competition

Moreover, Both Trastuzumab and Rituximab have been already approved in Subcutaneous Forms - making the administration convenient and short - Another innovation which will hamper biosimilar growth.

These are some of my thoughts about competitive landscape of biologicals based on my knowledge. Kindly take them as input to the forum rather than any prediction about Biocon future performance.

Thanks

Addition: If i understand correctly, there is no 6 month exclusivity as happens with non biological drugs like pomalidomide (NATCO) in case of biosimilars.

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Question to fellow members:

When Systengene was spin-off from Biocon, they could have given shares to existing shareholder, instead they opted for holding company structure.
What is the rational management gave that time to have a holding company structure? Any ideal/link?

As per my research Syngene was listed mainly cause Biocon needed the money to fund development of Biocon Biologics.
Eventually Synegne will be de merged from Biocon and at that point in time, all shareholders of Biocon will recieve shares in Syngene.

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Both statements aren’t true.

Syngene was listed to unlock value. It won’t be merged and pretty much functions like an independent entity.

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Biocon Biologics and Viatris Receive European Commission Approval for Kixelle, Biosimilar Insulin Aspart.Here is the press release from the Company:-

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Biocon Biologics and Viatris Inc. Receive CHMP Nod for Abevmy® , a Biosimilar to Avastin® (Bevacizumab)

Biocon Biologics Ltd. (a subsidiary of Biocon Ltd.) announced today that the European
Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) has
adopted a positive opinion recommending the marketing authorization of their
biosimilar Bevacizumab, co-developed with Viatris, to be marketed as Abevmy®
(injection bevacizumab 100mg and 400mg). Abevmy® is a biosimilar to Roche’s
Avastin®, prescribed for all indications including metastatic colorectal carcinoma,
metastatic breast cancer, non-small-cell lung carcinoma, glioblastoma, ovarian,
cervical and renal cancer as part of a specific regimen.

The decision of the European Commission (EC) is expected in May 2021, which, when
approved, will grant marketing authorization in the 27 European Union (EU) member
countries and European Economic Area (EEA) member states of Norway, Iceland and
Liechtenstein. For the U.K., the Medicines and Healthcare Products Regulatory
Agency’s “reliance procedure” will be followed, and the U.K. marketing authorization
can be expected shortly after the EC decision.

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New Deputy CEO for Biologics appointed, most likely will become CEO eventually.