Biocon India's Q1FY19 results (Underperformer) - In-line; Pegfilgrastim gets launched in US
Q1FY19 result highlights
- Consolidated gross revenues at Rs12.1bn (+24% yoy/ -1% qoq) were lower than our est of Rs12.3bn. Net revenues stood at Rs11.2bn (+20% yoy). BioPharma revenues came at Rs8bn vs est of Rs8.1bn. Other segments were broadly in line.
- Biologics revs came at Rs2.5bn (+36%/4% yoy/qoq. Quarter had some pretty small contribution from US market Fulphila (Pegfilgrastim) supplies to Mylan. The product was recently launched by Mylan. These revenues should begin to meaningfully scale-up from Q2 onwards. The company reiterated guidance of atleast $200m revenues from biosimilars in FY19.
- EBITDA of Rs2.4b (+24%/2% yoy/qoq) was below estimates of Rs2.6bn despite lower P&L R&D spends of Rs442m vs Rs508mn in Q4FY18; est of Rs550mn. Biocon capitalized Rs441mn (Rs467m in Q4FY18) of R&D.
- Other income was higher at Rs688mn (includes 390mn of forex gains) vs est of Rs500mn; Tax rate was higher at 27.4% vs est of 22%. Reported PAT was lower at Rs1.2bn (+47% yoy) vs est of Rs1.27bn
Key positives: Pegfilgrastim launch in US; Forex gains; FY19 biosimilar revenue guidance of atleast $200m
Key negatives: Higher tax rate
Impact on financials: We have increased our FY19E/FY20E earnings estimates to account for earlier than expected Pegfilgrastin launch in US.
Valuations & view
Mylan being the sole biosimilar player in Pegfilgrastim market provides opportunities for significant near-term upsides for the Biocon-Mylan partnership. This launch has come earlier than we anticipated. At a broader level, Biocon’s ability to secure FDA approvals for biosimilar Pegfilgrastim and Trastuzumab adds comfort on the company’s ability to secure approvals for other biosimilar drugs in its portfolio. Going forward, Biocon-Mylan’s ability to compete with fairly formidable competitors /innovators will determine the scale of their success. Given that meaningful biosimilar revenues are yet to accrue and a fairly muted core business, we believe the current stock price factors in most positives and doesn’t account for the uncertainties inherent in monetization of biosimilars in developed as well as emerging markets. We value Biocon’s core business at Rs275/sh (20x FY20E EBITDA and Syngene at 18x) and biosimilar portfolio at Rs230/sh (~$2bn). Maintain Underperformer with a SOTP-based TP of Rs505.
Biocon is an Indian biopharmaceutical company. Through its subsidiaries, Co. manufactures biotechnology products and is engaged in research and development in biotechnology. Co. provides a range of products from fermentation derived small molecules to recombinant proteins and antibodies. It has developed and taken a range of novel biologics, biosimilars, differentiated small molecules and recombinant human insulin and analogs from 'Lab to Market'. In research services, Co., through Syngene International Limited, is engaged in the business of custom research in drug discovery while the other subsidiary Clinigene International Limited (Clinigene) is engaged in clinical development.
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