It has been a false start for pharmaceutical companies so far. Close on the heels of Dr Reddy’s Laboratories Ltd’s disappointing results announcement, Biocon Ltd’s June quarter results also let down investors.

The firm reported net profit of Rs70 crore, much lower than consensus estimates of about Rs90 crore, according to a Reuters poll.

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Profit before tax grew by just 9% year-on-year (y-o-y). Biocon attributed the underperformance chiefly to a drop in licensing income.

Indeed, excluding the licensing income, profit before tax would have risen by 25%. Investors took solace from this—licensing income does fluctuate—and the company’s shares fell by only 2% on Thursday. But even revenue growth was relatively low.

Investors had already factored a drop in Biocon’s reported revenue due to the sale of subsidiary AxiCorp GmbH. The remaining components are biopharmaceutical and contract research revenues.

Core biopharmaceutical revenue, excluding licensing income, rose by only 10.4% y-o-y. That growth appears inadequate for a relatively young and growing firm such as Biocon. In a conference call, the management said one reason was the volatile situation in the Middle East, which affected sales in some growing markets.

Among the various segments the company operates in, domestic branded formulations did well, with sales rising by 28% y-o-y and the contract research business reported a 28% rise in revenue.

Thanks to the sale of AxiCorp, operating profit margins rose to about 28% from around 21% in the March quarter. The management expects licensing income to rise in the remaining quarters, with the full-year licensing income expected to be similar to the previous year’s figure of Rs155 crore.

The company is also focusing on other fast growing markets to compensate for slower growth in the Middle East, which is expected to show results going ahead.

Biocon is adding significantly to its field staff, planning almost a 50% addition in 2011-12, which should also drive domestic market growth. Salary costs are increasing at a fast pace and the trend is likely to continue. While research and other expenses declined last quarter, that may change, depending on Biocon’s business plan.

What investors will look for is higher sales growth in its core biopharmaceutical business and a surge in licensing income. But what would work as a trigger for the stock is if the company manages to strike an out-licensing deal for its products that are under development.

Graphic by Yogesh Kumar/Mint

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