We hosted Biocon at our Asia Investor Forum in London on June 9-10 and remain encouraged about its efforts towards becoming an established biosimilars enterprise from India in the long term.
Following are our key takeaways from management’s update: Insulin export sales are currently constrained by capacity in the Bangalore facility, which even after expansion is nearly fully utilised.
The Malaysia facility is on track and will significantly add capacity for emerging markets. Rh insulin funding is adequate (from deferred revenues), glargine phase III expenses will be capitalised.
Biosimilar MAb trastuzumab is facing recruitment delays, but should meet the timeline of a FY17/18 launch in the EU market – Biocon as 3rd or 4th player. Two more biologics should enter clinical trials in the next 12-18 months.
Small molecule sales at c$250 million currently should grow over next few years from additional APIs (rosuvastatin, sirolimus, everolimus) and gradual progression to formulations.
Branded formulations should see improvement with launch of cheaper disposable insulin pens as against expensive reusable currently in offering. We value Biocon at 17x (unchanged, in line with three-year stock average) our March-16 EPS estimate of R29.1 to arrive at our target price of R495.
Under our research model, for stocks without a volatility indicator, the neutral band is 5ppts above and below the hurdle rate for India stocks of 11%.