Next 6-12 months critical as company could launch multiple biosimilars in US and EU; TP at `720; remains one of top picks
Biocon has received European Union (EU) CGMP certification for its sterile drug product facility in Bangalore, which is used for the manufacturing of biosimilars. The certification clears the path for approval for biosimilars of both Trastuzumab and Peg-Filgrastim. Biocon resubmitted the MAAs for both the products in November, 2017 and is awaiting EMA CHMP opinion by the end of CY18.
With the plant compliance in place, CHMP opinion is next to watch out for and we believe that there are fair chances of getting favourable opinions as Biocon has already received approvals of both the biosimilars (Ogivri for Trastuzumab and Fulphila for Peg-Filgrastim) from US FDA. If the company is able to secure approvals on time, we could see the products being launched in end FY19 or FY20.
An overhang removed
The EU CGMP certification removes a major overhang on both the biosimilars as the approvals appear more certain and the likelihood of Biocon participating in both the biosimilar opportunities at market formation increases significantly. In Trastuzumab, two competitors (Pfizer & Allergan/Amgen) have received positive CHMP opinions (approvals yet to come) and a delay on account of compliance could have resulted in Biocon not participating in the first wave, reducing the overall opportunity.
Biocon is progressing well on biosimilars with three approvals already in place (USFDA approvals of Ogivri & Fulphila and Semglee in EU) over the last couple of quarters and three more products (the above two discussed in Europe and Semglee in US) are scheduled for review in the rest of CY18. The next 6-12 months are critical given that the company could launch multiple biosimilars in the US and EU. Maintain Buy, Biocon remains one of our top picks.
We set a target price of Rs 720 for Biocon which is a sum of the two parts. We assign a NPV of `130 to its three pipeline biosimilar products (glargine, adalimumab and bevacizumab), assuming 100% probability of successful commercialisation – as the biosimilar approvals process gets more certain post the approvals of bHerceptin and bNeulasta. We incorporate the earnings from bNeulasta and bHerceprin in the base business and value the base business at `590 (30x Mar’20e EPS). Biocon has entered a global biosimilar deal with Sandoz, though the specific details have not been shared. We capture the additional upside by assigning higher multiple to the base business (PE of 30x against 20x earlier). Since pharma is a growth sector, we prefer to use P/E v/s EPS CAGR as our primary valuation methodology for the base business of pharma companies.
Risks: (i) failure/significant delay in development/launch of biosimilars portfolio; (ii) setback on the oral insulin project; and (iii) price erosion in the Biopharma business.