Q4 a minor blip in Biocon's growth story, recovery expected in Q1FY21

Analysts estimate 38 per cent annual growth in earnings during FY20-22

Biocon’s revenue growth, at just 3 per cent for the March quarter (Q4), as compared to 13-30 per cent in the first three quarters of FY20, was largely because of the Covid-19-led supply disruption. The biologics segment (biosimilars), which has driven Biocon’s performance for seven straight quarters, declined 21 per cent year-on-year (YoY) in Q4 as the supply scheduled for the end of the quarter could not be completed. For the full year, however, biologics (30 per cent of revenues) still grew by 29 per cent over the previous year.

Christiane Hamacher, CEO & managing director, Biocon Biologics, said this was a one-time effect and that the firm shall see recovery in Q1FY21, and full normalisation by Q2FY21. According to her, the market share of Biocon’s biosimilar products, including those commercialised in the US, remains stable, which should ease investor concerns.

Meanwhile, Mylan, who is Biocon’s marketing partner for biosimilars in developed markets, has already won patent litigations on insulin Glargine for a US launch. Biocon’s insulin facility in Malaysia, too, has received an Establishment Inspection Report (EIR) from the the USFDA, making it a compliant facility. 

 

 

Thus, the Glargine launch is also expected by mid-2020 and should drive Biocon’s FY21 earnings. Penetration of insulin already launched in Europe, Australia, and other emerging countries remains good, the management said. Overall, with about five of Biocon’s biosimilar products (28 in the pipeline) already in various markets, the firm is aiming to achieve $1-billion consolidated sales by FY22 led by new launches, market share gains, and geographical expansions for existing products.

Analysts remain confident, and those at Axis Securities maintain a ‘buy’ rating on the stock.  The outlook for research services, which contributed about a third to the firm’s FY20 revenue and grew 14 per cent in Q4, remains strong because of increasing outsourcing by global majors in a bid to control costs.

Small molecules, which remain the largest segment, registered a 15 per cent growth in FY20 and 18 per cent in Q4. Notably, the small molecules facility in Bengaluru, too, has received an EIR recently after the USFDA’s inspections. The branded formulation business, though a very small part of top line, continues to decline, given issues in the UAE.

Led by its biologics segment’s potential laun-ches/increased market share gain in existing products and research services (robust business outlook), analysts at Motilal Oswal Financial Services expect a 38 per cent annual earnings growth over FY20-22 for Biocon.

In short, Q4 seems to be a minor blip in Biocon’s strong growth story.