cleared its plant at Malaysia and its committee for Medicinal Products for ... Both companies will share their key stren
INSTITUTIONAL EQUITY RESEARCH
Biocon (BIOS IN) Crowned with multiple biosmilar triggers
21 March 2018
INDIA | PHARMACEUTICALS | Company Update We recently hosted Biocon in a road‐show in Hong Kong. Here are key takeaways:
BUY (Maintain)
Update on the biosimilar pipeline
CMP RS 576 TARGET RS 700 (+22%)
¾ Likely EU approval for insulin glargine in the near term: BIOS expects approval for insulin glargine in the EU anytime now, as the European Medicines Agency has already cleared its plant at Malaysia and its committee for Medicinal Products for Human Use (CHMP) has recently given a positive opinion and recommended for marketing authorization. BIOS filed biosimilar glargine with USFDA in Q3, which triggered a USFDA inspection of its Malaysian plant (in March 2018) and resulted in Form‐483 with six observations. However, the management believes the observations are largely procedural in nature and requires strengthening procedures/quality system. Targets commercialization in the US in 2020. ¾ Pegfilgrastim in the US could be the potential biggest biosimilar opportunity in H2CY18: With a US market opportunity of ~US$ 4bn pegfilgrastim could surprise BIOS’ biosimilar initiatives positively. BIOS expect inspection of plant before its target action date (TAD) in June 2018. However, we draw comfort from the fact that USFDA has earlier approved Trastuzumab in December‐2017 from the same plant. Competitor Coherus Biosciences expects its biosimilar approval in H2CY18, but Sandoz is likely to re‐file in 2019. So BIOS expects pegfilgrastim to remain a limited‐competition product with only 2‐ 3 players in the initial period. ¾ Pegfilgrastim and Trastuzumab in the EU could be a H2CY18 opportunity too: BIOS successfully re‐filed its application for pegfilgrastim and trastuzumab with the EMA in Q3 (after its CAPA completion). Expects to receive final approval in H2CY18, but before that, its Bangalore plant could face an EMA re‐inspection (in March/April 2018; as indicated by EMA in its previous inspection). For trastuzumab, BIOS expects to have an edge over competitors (Pfizer, Amgen) with >10,000 patient data in emerging markets. ¾ Partner Mylan guides to launch biosimilar adalimumab (with an EU market potential of US$ 5.6bn) in the EU in Q4CY18, but the US launch timelines remained unclear. We await more clarity in the upcoming Mylan investor in Apri‐2018.
Building MAB plant with a capex of US$ 200mn: Considering the potential first‐mover advantage in pegfilgrastim in the US, and subsequent trastuzumab/adalimumab launch in the EU, BIOS is building a biologic plant with a capex of US$ 200mn, which will significantly expand the capacity. This Capex will be in two phase and will get complete in next 3‐4 years. Moreover, it has plans for additional capex of US$ 150‐200mn for its Malaysia insulin plant phase II expansion but it depend upon clinical movement in Aspart (global phase‐I) and Lispro (Preclinical). However, current Malaysia facility is sufficient to cater to insulin demand for next few years. Sandoz pact will be a long‐term strategic move to strengthen its biosimilar pipeline: BIOS considers its global pact with Sandoz (to develop, manufacture, and commercialise multiple next‐generation biosimilars in immunology and oncology) a strategic long‐term move. Both companies will share their key strengths as well as responsibility for the end‐to‐ end development of the biosimilar pipeline. Interestingly, it is an equal cost/profit‐sharing arrangement and complements BIOS’ aspirations of building a biosimilar/biologic pipeline of its own for the advanced markets. BIOS expect the market entry of partnership products in middle of next decade and there for following Mylan partnered pipeline products currently. Reiterate BUY with target of Rs 700: We see strong traction in its biosimilar initiatives from FY19. We value BIOS at Rs 700, i.e. 35x FY20 EPS, as against the 53x CY19 valuations for its only comparable peer Celltrion Inc. Additionally, the scope for value‐unlocking from the potential listing of BIOS’ biosimilar subsidiary – “Biocon Biologics” could surprise investors positively in the medium term. We reiterate our conviction BUY. Page | 1 | PHILLIPCAPITAL INDIA RESEARCH
COMPANY DATA O/S SHARES (MN) : MARKET CAP (RSBN) : MARKET CAP (USDBN) : 52 ‐ WK HI/LO (RS) : LIQUIDITY 3M (USDMN) : PAR VALUE (RS) :
600 324 5.07 564 / 295 24.9 5
SHARE HOLDING PATTERN, % PROMOTERS : FII / NRI : FI / MF : NON PRO : PUBLIC & OTHERS :
Dec17 60.7 17.3 3.5 9.1 9.8
Sep17 60.7 15.8 3.5 9.3 10.8
Jun 17 60.7 15.8 3.4 10.1 10.4
PRICE PERFORMANCE, % ABS REL TO BSE
1MTH 4.4 ‐0.5
3MTH 41.6 33.4
1YR 63.3 33.9
PRICE VS. SENSEX 350 300 250 200 150 100 50 Apr/16 Oct/16 Apr/17 Oct/17 Biocon
BSE Sensex
Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY18E FY19E FY20E Net Sales 40,838 55,576 69,933 EBIDTA 8,414 13,628 18,976 Net Profit 3,706 7,601 11,859 EPS, Rs 6.2 12.7 19.8 PER, x 93.2 45.5 29.1 EV/EBIDTA, x 43.3 26.9 19.1 P/BV, x 7.5 6.8 5.8 ROE, % 7.5 14.3 19.2 Total debt/Equity (%) 51.0 46.7 40.1 Surya Patra (+ 9122 6246 4121)
[email protected] Mehul Sheth (+ 9122 6246 4123)
[email protected]
BIOCON COMPANY UPDATE
Financials Income Statement Y/E Mar, Rs mn Net sales Growth, % Other income Total income Raw material expenses Employee expenses Other Operating expenses EBITDA (Core) Growth, % Margin, % Depreciation EBIT Growth, % Margin, % Interest paid Other Non‐Operating Income Non‐recurring Items Pre‐tax profit Tax provided Profit after tax Others (Minorities, Associates) Net Profit Growth, % Net Profit (adjusted) Unadj. shares (m) Wtd avg shares (m)
Cash Flow FY17 38,763 18 453 39,216 ‐14,771 ‐7,470 ‐7,157 9,818 26.3 25.0 ‐2,772 7,046 33.3 18.2 ‐260 1,571 0 8,334 ‐1,616 6,718
FY18e 40,838 5 204 41,042 ‐17,853 ‐8,003 ‐6,772 8,414 ‐14.3 20.5 ‐3,798 4,615 ‐34.5 11.3 ‐637 1,655 0 5,633 ‐1,410 4,223
FY19e 55,576 36 278 55,854 ‐23,179 ‐8,937 ‐10,110 13,628 62.0 24.4 ‐4,306 9,322 102.0 16.8 ‐596 2,260 0 10,987 ‐2,710 8,277
FY20e 69,933 26 350 70,282 ‐28,113 ‐10,894 ‐12,299 18,976 39.2 27.0 ‐4,657 14,320 53.6 20.5 ‐601 2,860 0 16,579 ‐4,070 12,509
‐760 5,958 47.9 6,144 600 600
‐759 3,463 (39.7) 3,706 600 600
‐980 7,297 105.1 7,601 600 600
‐1,029 11,480 56.0 11,859 600 600
Balance Sheet Y/E Mar, Rs mn Cash & bank Debtors Inventory Loans & advances Other current assets Total current assets Investments Gross fixed assets Less: Depreciation Add: Capital WIP Net fixed assets Total assets Current liabilities Provisions Total current liabilities Non‐current liabilities Total liabilities Paid‐up capital Reserves & surplus Shareholders’ equity Total equity & liabilities
FY17 10,443 8,832 6,353 3,899 4,364 33,891 12,530 57,196 ‐18,136 5,591 44,651 93,942 9,813 3,828 13,641 31,163 44,804 1,000 44,377 49,138 93,942
FY18e 5,299 8,995 6,973 3,899 4,364 29,530 12,530 67,444 ‐21,934 5,091 50,601 95,531 10,120 3,828 13,948 31,583 45,531 3,000 43,239 50,000 95,531
Source: Company, PhillipCapital India Research Estimates
Page | 2 | PHILLIPCAPITAL INDIA RESEARCH
FY19e 2,402 12,242 8,676 5,306 4,364 32,991 12,530 77,307 ‐26,240 4,591 55,657 104,048 13,772 3,870 17,642 31,672 49,314 3,000 47,973 54,734 104,048
FY20e 6,427 15,404 10,542 6,677 4,364 43,415 12,530 84,761 ‐30,897 4,091 57,955 116,770 17,330 3,958 21,288 31,779 53,067 3,000 56,941 63,702 116,770
Y/E Mar, Rs mn FY17 Pre‐tax profit 8,334 Depreciation 2,772 Chg in working capital 259 Total tax paid ‐2,920 Cash flow from operating activities 8,445 Capital expenditure ‐7,536 Chg in investments ‐3,524 Cash flow from investing activities ‐11,060 Free cash flow 909 Debt raised/(repaid) ‐1,752 Dividend (incl. tax) ‐3,000 Cash flow from financing activities ‐3,726 Net chg in cash ‐6,341
FY18e 5,633 3,798 ‐776 ‐1,266 7,390 ‐9,748 0 ‐9,748 ‐2,358 576 ‐3,000 ‐3,028 ‐5,387
FY19e 10,987 4,306 ‐2,963 ‐2,543 9,786 ‐9,363 0 ‐9,363 423 222 ‐3,000 ‐3,624 ‐3,201
FY20e 16,579 4,657 ‐3,053 ‐3,879 14,303 ‐6,954 0 ‐6,954 7,349 216 ‐3,000 ‐3,704 3,645
FY17
FY18e
FY19e
FY20e
10.2 (50.7) 75.6 10.2 14.9 11.5 5.0
6.2 (39.7) 77.1 6.2 12.5 9.6 5.0
12.7 105.1 85.0 12.7 19.8 12.5 5.0
19.8 56.0 99.9 19.8 27.5 19.1 5.0
7.7 13.1 10.7
4.9 7.5 7.7
8.7 14.3 13.4
11.7 19.2 18.0
0.8 0.4 0.9 0.4 83.2 128.4 3.5 2.8 27.1 2.0 50.7 27.7 56.3 (1.1) 7.6 0.9 9.2 36.5 50.8
0.7 0.4 0.9 0.3 80.4 126.1
0.9 0.6 1.0 0.3 80.4 110.4
1.0 0.6 1.2 0.3 80.4 102.6
2.9 2.2 7.2 1.2 51.0 39.6
2.4 1.8 15.7 2.5 46.7 42.0
2.5 1.9 23.8 4.0 40.1 29.4
93.2 (2.4) 7.5 0.9 8.9 43.3 78.8
45.5 0.4 6.8 0.9 6.6 26.9 39.4
29.1 0.5 5.8 0.9 5.2 19.1 25.4
Valuation Ratios Per Share data EPS (INR) Growth, % Book NAV/share (INR) FDEPS (INR) CEPS (INR) CFPS (INR) DPS (INR) Return ratios Return on assets (%) Return on equity (%) Return on capital employed (%) Turnover ratios Asset turnover (x) Sales/Total assets (x) Sales/Net FA (x) Working capital/Sales (x) Receivable days Working capital days Liquidity ratios Current ratio (x) Quick ratio (x) Interest cover (x) Dividend cover (x) Total debt/Equity (%) Net debt/Equity (%) Valuation PER (x) PEG (x) ‐ y‐o‐y growth Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x) EV/EBIT (x)
BIOCON COMPANY UPDATE
Stock Price, Price Target and Rating History 600
B (TP 540)
500
400 N (TP 327)
B (TP 540) B (TP 540) N (TP 367) N (TP 367) B (TP 540)
N (TP 305) 300 B (TP 305) 200 B (TP 164) B (TP 197) B (TP 192)
B (TP 180) 100
B (TP 200) B (TP 200) B (TP 200)
0 M‐15 M‐15 J‐15 A‐15 S‐15 N‐15 D‐15 F‐16 M‐16 M‐16 J‐16 A‐16 S‐16 N‐16 D‐16 F‐17 M‐17 M‐17 J‐17 A‐17 S‐17 N‐17 D‐17
Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition BUY
>= +15%
Target price is equal to or more than 15% of current market price
NEUTRAL
‐15% > to