Biocon rating: Hold – Vaccines to complete the biosimilar portfolio

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An employee wearing protective clothing works inside the research and development center on the Biocon Ltd. campus. in Bengaluru, India on Wednesday, November 16, 2016. This year, Biocon shares are up nearly 80% with the best performance among shares of generic drug makers. globally, after one of the company’s best-selling copies of a biologic drug made its first entry into a developed market. Photographer: Dhiraj Singh / Bloomberg

Biocon Biologics Ltd. (BBL), a subsidiary of Biocon Ltd, entered into a strategic alliance with Serum Institute Life Sciences Private Ltd (SILS) under which SILS would become a 15% stake in BBL upon the merger of Covishield Technologies Pvt Ltd (CTPL) , a 100% subsidiary of SILS, in BBL. Through CTPL, BBL would gain guaranteed access to 100 million doses of vaccine per year for 15 years, primarily from SILS’s upcoming vaccine plant in Pune with marketing rights for global markets.

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This agreement is subject to receipt of regulatory and other approvals. Other investors in BBL who hold a 10.11% stake in BBL have approved the transaction. The SILS deal values ​​BBL at around $ 4.9 billion.

Complementary agreement to Biocon’s biosimilar portfolio: according to Biocon, the vaccines are complementary to its biosimilar portfolio under BBL and the alliance offers an attractive saving given the price of $ 3 to $ 10 per dose and the associated operating margins of around 30% for vaccines in world markets. The profit-sharing agreement with SILS would provide commercial visibility for the next 15 years. Biocon expects vaccine revenue to start at S2FY23 with initial supplies primarily for COVID-19 vaccines. Eventually, the supplies would include several vaccines against infectious diseases, such as dengue, chikungunya, etc.

Biocon plans to leverage its existing commercial infrastructure for biosimilars for vaccine distribution in global markets.

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We are not yet including vaccines in our financial statements as we are awaiting statutory closure of the agreement. Nonetheless, our analysis on the back of the envelope indicates that vaccines could add a NPV of Rs 21 per share to our TP, which would increase our target price by 5%, in our baseline scenario. The alliance would also develop antibodies against dengue, HIV, etc.

Accelerating biosimilar delivery remains key: Biosimilars remain the primary focus of Biocon, which seeks to accelerate delivery with key launches in the US and EU. As COVID-19 has disrupted the market uptake of biosimilars, the commercial execution of Biocon and its partner Viatris has so far been less impressive than that of competitors.

Biocon / VTRS are hoping for better execution going forward, and the planned launch of ‘interchangeable’ Semglee (insulin glargine) in the United States towards the end of 2021 could be a big boost for their biosimilar portfolio.

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Retain maintenance and TP of Rs 415: we are retaining the maintenance rating pending improved execution for biosimilars. The launch of ‘interchangeable’ Semglee in the United States and the market share gains for the biosimilars launched could be key catalysts for Biocon.

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