>BIOCON: Fidaxomicin launched in Europe

Biocon’s revenues for Q1FY13 were in line with our expectations but EBIDTA margin and net profit were below our expectations. The company reported 30%YoY growth in revenues, 400bps fall in EBIDTA margin and 12%YoY growth in net profit. The sales growth was across all verticals. Notably among them were: 52%YoY growth in branded formulations-India and 40%YoY growth in contract research. The company has completed global Phase I clinical trials for biosimilar glargene. Biocon’s Itolizumab has completed Phase III clinical trials and is likely to be launched in India. The company has plans to outlicense this molecule. We have a Buy rating for the scrip with a target price of Rs344 (based on 16x FY14E EPS).


Excellent sales growth: Biocon reported 30%YoY growth in revenues from Rs4.43bn to Rs5.77bn. About 16% of the growth was attributed to rupee depreciation. The biopharmaceutical business (64% of revenues) grew by 23%YoY from Rs2.99bn to Rs3.68bn. Its domestic formulation business (15% of revenues) grew by 52%YoY from Rs567mn to Rs860mn. The contract research business (21% of revenues) grew by 40%YoY from Rs874mn to Rs1,224mn. Margin under pressure: Biocon’s margin for 1QFY13 declined by 400bps from 25.3% to 21.3% of net sales due to the overall increase in costs. Its material cost increased by 60bps from 47.8% to 48.4% of net sales due to the rise in imported raw material cost. Other expenses went up by 340bps from 12.4% to 15.8% due to the rise in R & D expenses.



Fidaxomicin launched in Europe: The Fidaxomicin partner Optimer Pharma, US has launched the product in Europe and Canada in June’12. We expect Fidaxomicin supplies to Optimer to be major growth driver for Biocon. 


Domestic formulations: Biocon reported 52% growth in domestic formulations led by oncology, diabetology and comprehensive care. The management expects this business to cross Rs5.0bn revenues by FY15.


Valuations: We expect Biocon to benefit from the strong growth in domestic formulations, contract research and insulin businesses. At the CMP of Rs239, the stock trades at 13.9x FY13E EPS of Rs17.2 and 11.1x FY14E EPS of Rs21.5. We have a Buy rating for the scrip with a target price of Rs344 (based on 16x FY14E base EPS of Rs21.5) with an upside of 43.9% over CMP.


To read report in detail: BIOCON