The company is bearing fruit and had reported a strong 30.4 per cent growth in revenues during the April-June quarter, driven by 96 per cent growth in its biologics portfolio. The launch of biosimilar Pegfilgrastim in the US saw higher volume share of 21 per cent, while contribution from its European biosimilar portfolio drove growth in the biologics segment.
While biosimilars drove the company’s growth, it was well supported by other segments such as small molecules, which saw growth momentum continue. Branded formulations, however, continued facing headwinds, led by re-pricing of products in the United Arab Emirates.
Growth in research services, too, was just 4 per cent, but should gain pace with Biocon’s Hyderabad facility coming online soon. The research services business though has strong prospects, with increased outsourcing in the global markets
on the back of higher competition and low product prices leading companies to rationalise their cost structures.
Biocon’s share price, however, has been on a declining trend, down about 30 per cent from its highs in April this year. Analysts attribute the same to rich valuations the stock was trading at, as the Street was euphoric on biosimilar launches. The broader markets, too, have been correcting, while sentiment towards the pharma sector has also remained weak.
Analysts add that though the biosimilar market remains attractive, with many players focusing on the biosimilar market opportunity, any increased competition or moves by drug innovating companies to keep higher market share could lower the opportunity size of products, which has added to the Street’s concerns.
The focus of investors thus, has now turned towards ramp-up in the biosimilar portfolio and the launch of Trastuzumab and Glargine in the US. Analysts say amongst challenges are that Amgen (a competitor) has already launched Trastuzumab in the US. Though a lag of a few months in launch may not make a huge difference, Biocon-Mylan’s execution will be crucial for success in the US, where the market is still evolving, they add.
The European markets, however, remain attractive despite competition seen from the success of some peers who have executed well.
Thus, even as the market is cautious, despite some challenges, analysts remain positive on Biocon’s prospects. Those at Centrum Broking say they expect Biocon’s growth momentum to continue over the next two years, though it may be lower than their earlier expectations.
Analysts at HSBC believe that despite initial hiccups, Biocon
remains well-placed to gain from the favourable push for biosimilar in regulated markets. Also, a recent deal between Mylan and Pfizer could provide a strong commercial platform for biosimilars, potentially benefiting Biocon, they add.
While HSBC and Centrum Broking have Buy recommendations, analysts at Phillip Capital say that its biologics segment is currently valued at a deep discount and Biocon
remains their conviction Buy.