Biocon trips on German rebate2 min read . Updated: 20 Jan 2011, 11:58 PM IST
Biocon trips on German rebate
Biocon trips on German rebate
The increasingly multinational nature of Indian companies has made them vulnerable to events in faraway locales. Consider Biocon Ltd: Germany’s decision to hike the compulsory rebate on generic drugs to 16% hit its performance in the December quarter. The intention was to lower Germany’s healthcare costs to improve its fiscal position.
Biocon’s German subsidiary AxiCorp GmbH, which sells generic drugs in the local market, saw sales drop by 16%, over the year-ago period, to ₹ 218 crore. It contributed about 36% to Biocon’s sales in the first three quarters.
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The rest of its business did well. Sales of biopharmaceuticals (excluding AxiCorp) rose by 40%, with a contribution of 53% to total sales, and overall sales rose by 15% to ₹ 728 crore in the December quarter. Biocon’s sales growth thus came in lower than the September quarter’s figure of 17%, but could have been worse, but for the biopharma division’s sales. Its research business did well during the quarter, compared with earlier periods.
The biopharma division’s performance was aided by a fourfold jump in licensing income to ₹ 77 crore, compared with the September quarter. Its new alliance with Pfizer Ltd was the key reason, and its impact will be visible in future quarters and years. The division’s core sales, excluding licensing income, rose by 22%.
Sales of domestic formulations rose by 32% during the quarter and the company claimed good sales growth in overseas markets, too, for products such as statins, immunosuppressant and branded formulations.
The tie-up with Pfizer has also introduced some volatility to its financials. Income will be recognized as milestones are reached. Expenses will also increase, but these will be reimbursed in due course. Eventually, the net effect is likely to be positive on income and profits.
Biocon’s operating profit margin was 23% in the quarter against 20% in the year-ago period, as the increase in licensing income helped protect margins, despite the steep fall in AxiCorp’s profitability. Its profit before tax rose by 39%, which should have ordinarily resulted in a comforting growth in profit for investors, but its tax rate rose during the period. Biocon transferred some intellectual property rights (again, related to the Pfizer deal) to an overseas arm, on which it had to pay tax. Thus, its net profit grew by a much lower 22% to ₹ 102 crore, though that deal did not affect its consolidated performance.
The longer-term outlook for Biocon continues to appear sound, but the near-term effects of AxiCorp’s pricing woes will cast a shadow on earnings growth in the current quarter, too. The Pfizer deal may spring positive surprises, but that cannot be predicted. That may explain why its share price fell by about 2% on Thursday.
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