Biocon shares have fallen over 12 per cent ever since the company said on Monday that its subsidiary, Biocon Biologics (BBL) will acquire its partner – Viatris’ biosimilars portfolio, including existing partnered assets for $3.33 billion. Biocon shares were trading at Rs 347 on Wednesday, down over 12 per cent from Monday’s high of Rs 397 per share. “With this acquisition, Biocon gains the entire suite of economic interests and sales force, but without any major pipeline assets (except bEylea, where Biocon has a call option). It is yet to be seen if Biocon will surpass Mylan’s efforts and at ~16.7x CY22 EBITDA, room for disappointment is limited,” brokerage firm Edelweiss Securities said in its note.
Stock Talk: Should you buy, hold or sell Biocon shares?
Edelweiss: Reduce
Target price: Rs 315
Edelweiss Securities analysts believe that the acquisition does not guarantee an improved performance by Biocon, given the fact that pegfilgrastim and trastuzumab market shares seem to have plateaued. Aggressive pricing even by innovators in biosimilars; and impending competition are other concerns. Moreover, limited commercialisation capabilities in developed markets makes it all the more challenging where execution remains yet to be seen. “We see limited scope for a revenue surprise with no new major pipeline assets, except the ones already factored-in in the near-term launches– bevacizumab, bAspart and adalimumab. This limits the earnings upgrade potential,” Edelweiss said in its note. The brokerage maintained ‘REDUCE/SU’ rating in the stock with a target price of Rs 315.
Motilal Oswal: Neutral
Target price: Rs 385
Analysts at Motilal Oswal Financial Services believe that the deal enhances Biocon’s commercial, regulatory capabilities in developed markets and gives it the option to acquire b-Aflibercept (a potential Biosimilar asset). They, however, said that while the deal forward integrates Biocon in the Biologics value chain, the valuation paid for acquiring the Viatris’ commercial infrastructure in developed markets is expensive. “While the overall outlook on BIOS’ Biosimilars/Small Molecules remains encouraging, based on its product pipeline and existing commercial traction, we maintain our Neutral rating as current valuations adequately factor in potential upside in earnings,” said Motilal Oswal.
Sharekhan: Buy
Target price: Rs 420
Sharekhan in its note mentioned that Biocon’s recent acquisition of Viatris’ biosimilar assets offers significant long-term growth opportunities. However, a substantially higher debt to fund the acquisition and lower margins for the acquired portfolio could exert pressure on earnings leading to a likely earnings dilution in FY23 while FY24 is likely to be earnings neutral. “Despite near-term pressure, long-term levers are intact and possible listing of BBL is a key positive. Hence, we retain a Buy on the stock with a revised PT of Rs 420,” the report said.
