Higher sales, licensing income enhance Biocon’s profitability

Higher sales, licensing income enhance Biocon’s profitability

Biocon Ltd’s profitability improved in the quarter ended September, as it benefited from higher sales and licensing income. During the quarter, sales of biopharmaceuticals rose by 19% to 601 crore, with product sales rising by 16%, while licensing income doubled to 23 crore. It has an alliance with US-based Mylan Inc. and receives license income based on the progress of work. The first biosimilar product under this alliance has entered the pre-clinical trials phase, said the company.

Biocon has also announced a $350 million (around 1,500 crore) licensing arrangement with Pfizer Inc. pertaining to its insulin products. Its share price has risen nearly 10% since the announcement was made, explaining why the good results did not move the stock.

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Biocon’s revenue rose by 17% and its material costs rose by only 15%. But a decline in other expenses and slower growth in material costs enabled it to improve its operating profit margin by 170 basis points. Its profit-before-tax rose by 26% but higher taxes lowered the net profit growth to 20%.

The company’s biopharmaceuticals business is doing well, with branded formulations’ sales up by 32% year-on-year in the first half of the year. It has started two new divisions of immunotherapy and comprehensive care. Its German subsidiary AxiCorp GmbH won some key tenders for supplying generic drugs, and its sales rose by 30% to 523 crore in the first half. Biocon’s biopharmaceutical division is expected to do well in the second half as well.

On the research front, a key development is the company deciding to launch its oral insulin simultaneously worldwide, which will involve carrying out US clinical trials. Earlier, the company was contemplating an India launch, followed by a roll-out in other markets. The company believes the benefits of following this approach will be substantially higher. Its research services business saw slow growth of 7% in the second quarter, which appears to partly be a result of an effort to focus only on value-added work.

In the near term, the inflows from the Pfizer transaction will hold investor interest. Around $200 million will be in the form of an upfront payment, though it will reflect in Biocon’s profit and loss statement in stages. It will use this money to fund its capital investments and regulatory filing fees, which would have otherwise put a strain on its finances. This will ensure that Biocon can fund its growth without resorting to more borrowings. As of September, its debt levels have fallen by 17%. Biocon’s per share earnings, based on consensus estimates, are expected to rise by 13% in fiscal 2011 and by 17% in fiscal 2012. Its share trades at around 26 times its fiscal estimated 2011 earnings. That appears justified, given the boost to its business from the Pfizer transaction, and its earnings so far having risen much faster.

Graphic by Yogesh Kumar/Mint

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