After a below-expectations September quarter, Biocon Ltd has reason to rejoice. The pharmaceutical company has received approvals for some critical drug launches in the US, breathing life into the stock. Investors are banking on biologics business, which is being seen as a catalyst. The scrip, which trended lower over the past two years, has been heading north since September and has gained 16% in the past month.
Much of the enthusiasm surrounds the expected ramp-up of Biocon’s biologics business. Along with Mylan NV with whom it has a tie-up, the company is expected to launch some critical biosimilars in the US. It is also expected to ramp-up some existing products. Biocon has been investing in biosimilars, which are close variants, banking on key ingredients for the same therapeutic effect.
In fact, over the past several years, Biocon has been expanding capacity to address the increasing demand for biologics. Analysts estimate that biologic sales would make up for about 35% of the company’s sales in FY21, markedly higher from 26% in FY19.
Recently, Biocon launched a biosimilar of Herceptin, called Ogivri, in the US market. Herceptin has sales of about $2.9 billion in the US, hence, the Biocon-Mylan launch is one of the first to tap this potential. However, b-Herceptin is likely to see only a gradual ramp-up in the US and sales would largely come from new patients. With this launch, analysts note that Biocon and Mylan will have two important biosimilars in the US market. Biocon could also launch another high potential biosimilar, insulin glargine, in March 2020 in the US.
As has been the case, price erosion post-launches has been a key issue in the US. Nevertheless, analysts still expect an increase in profits. “With a 40% price erosion and a 10% market share, we estimate Ogivri will provide further sales of $165mn/ 190mn for the Biocon-Mylan alliance in FY21 and FY22. This implies incremental sales net profit for BIOS from the opportunity are $50mn/10mn in FY21, implying 5% additional earnings. This has already been built into our estimates, however," said PhillipCapital (India) Pvt. Ltd in a note to clients.
Biocon has received US Food and Drug Administration’s approval for its extended manufacturing facility in Bengaluru recently. As a result, it can now cater to the demand for biosimilars in the US and other global markets. Earlier, capacity constraints had kept Biocon and Mylan from capitalizing on the Neulasta launch in the US in 2018.
Developments, though, around Biocon’s key launches will have to be watched. Though its product mix is getting better, scaling up in the US may be quite a challenge