With its stronghold in the insulin segment and its expansive reach in the biopharmaceuticals, clinical research and clinical custom spheres, Biocon is placed in the envious position of moving ahead at an athletic pace
With 30 million diabetic patients in India, Biocon is well-placed to deliver good growth ahead with its insulin portfolio. In diabetology the company is growing at a rapid rate of 40 per cent in the domestic segment. The company enjoys a market share of 12 per cent in the insulin market in India. This share in the diabetic segment has increased from 0.1 per cent in 2008 to 0.3 per cent in 2009. In India the other segments that the company caters to apart from diabetology and cardiology are nephrology and oncology. In the nephrology segment the company has begun to command a market share of 10 per cent within three years of its product launch.
[INSERT_1]
In the cardiology segment, Clotide™ (Eptifibatide) is now the number one brand in its category within 12 months of its launch. Biocon is also a leading player in statins and commands a 20 per cent market share and derives 30 per cent of its revenue from this business. It has a presence across the entire chain of statins with Lovastatin, Simvastatin, Pravastatin and Atorvastatin through the fermentation process which requires high technological skills. The patent expiry of Atorvastatin (market size of USD 12 billion) is likely to give a boost to Biocon’s revenue as it is expected that the company will now be in a much better position to supply APIs because of its expertise in the field.
Another boost to the company is likely to be the oral insulin molecule IN105 entering its third phase trials in June 2010. It is likely to be EPS accretive by Rs. 3.50 as the company is planning to out license the molecule to a multinational pharmaceutical company and is likely to receive Rs 65-70 crore towards milestone payment. As regards the company’s business, Biocon is a biotechnology company with a presence in biopharmaceuticals, custom research (Syngene) and clinical research (Clinigene). It has set up a US’ FDA-approved manufacturing facility at Bangalore and has a presence in over 75 countries across the globe. Biocon plans to spend around Rs 125 crore on capex in FY10 and a similar amount in FY11.
Syngene and Clinigene are Biocon’s 100 per cent subsidiaries for custom research and clinical research respectively and are likely to post strong growth in the next 1-2 years with increased outsourcing activity by global pharma and biotech companies. Biocon also plans to list Syngene and Clinigene in India in FY11. At present Syngene and Clinigene contribute about 20 per cent to the topline. The company believes that the outsourcing activity in the research and development area is going to improve from the next fiscal. Meanwhile, Axicorp, its German subsidiary, has posted robust topline and bottomline numbers with EBITDA margin of 6.3 per cent and PAT margin of 4 per cent for 9MFY10. These figures are quite impressive when com-pared to other companies operating in Germany. Metformin and the other tenders that Axicorp has won are helping to boost its topline. According to a recent survey, Axicorp is rated as the largest Indian-owned pharmaceutical company in Germany.
At CMP of Rs 262 the stock is trading at a P/E of 16.66x and 13.73x on an EPS of Rs 15.73 and Rs 19.08 for FY10E and FY11E respectively. The company is likely to benefit from its growth in statins, recombinant insulin, contract research and the increasing branded formulation business. Our recommendation to investors is to buy the scrip at its current level with a target price of Rs 343 (18 x FY11E EPS) for a time horizon of one year.