Biocon: Positives factored in

The Biocon stock seems to be on a roll after its results for the quarter ended June and on upsides from its biosimilar portfolio. The stock hit an all-time high and ended 15 per cent higher at Rs 808.70 on Friday. Since February, it is up 86 per cent.

While euphoria over the company's gains in the biosimilar segment continues, there was some nervousness in the Street about the June quarter performance. Those doubts were, however, put to rest as the company reported a 34.5 per cent year-on-year growth in net profit to Rs 167 crore, much higher than the Bloomberg consensus estimate of Rs 118 crore.

The Ebitda (earnings before interest, taxes, depreciation and amortisation) at Rs 263 crore, too, was much ahead of consensus estimates of Rs 218 crore, while revenues at Rs 972 crore (up 28.3 per cent) came three per cent ahead of estimates of Rs 943 crore.

The growth was led by all-round performance of its verticals of small molecules, biologics, branded formulations and Syngene, Biocon's research services subsidiary.

Biocon also announced that European Medicines Agency has accepted for review Mylan's marketing authorisation application for the pegfilgrastim biosimilar, used for treating neutropenia, an immune system condition that could lead to infections, which has been co-developed by Mylan and Biocon. A biosimilar is the generic equivalent of a Food and Drug Administration-approved product.

Other positive events have also added to the sentiments. Biocon's insulin Glargine was launched in Japan through its marketing partner Fujifilm Pharma. Its three positive data points from global confirmatory efficacy and safety study with Trastuzumab, the breast cancer drug, was also presented at the American Society of Clinical Oncology.

Biocon already had initiated Phase III clinical trials of biosimilars such as Trastuzumab, Pegfilgrastim, Adalimumab and insulin Glargine. It would file for regulatory approvals in the current financial year in the US and the EU, which is a major trigger. All these are keeping the Street exuberant.

While the success of biosimilars can drive Biocon's growth, some analysts are still not very confident on earnings. They feel growth through four products, if launched successfully, will be back-ended with benefits flowing in later. Analysts at CLSA had said the US and EU are in an early stage of the biosimilar approvals cycle and one cannot rule out regulatory hurdles, legal delays, and the subsequent cash flow generation from this business.

But, if these fears are unfounded, expect good gains. For now, the price target of analysts is in a range, with highs of Rs 889 and consensus at Rs 643, accordign to a Bloomberg poll conducted in July. It seems the Street is relying, too, much on expectations.