Street confidence rises on Biocon's insulin biosimilars

With expected filings of four insulin products in the current financial year, analysts have started upgrading their earnings estimates for the company

Biocon has been in the news due to its insulin drug pipeline. A few days earlier, it got approval from the Japanese regulator to sell its biosimilar insulin, Glargine, in disposable pens, in what is the world’s largest market for insulin outside of the US and Europe. This is positive, given the $144-million Glargine market in Japan.

Thus, it is not surprising that the Street and experts have started turning upbeat on the company’s prospects and are looking at success with the products it is developing for the US market.

While pharmaceutical companies are currently exploiting the generic opportunities offered by drugs going off-patent in the US, biosimilars is the segment likely to drive growth. Biosimilars are made of living organisms. The DNA of these is genetically engineered to make it capable of curing ailments. The process is highly complex and technologically advanced.

Many companies have been spending to develop a biosimilar pipeline, including  Dr Reddy’s, Lupin and Sun Pharmaceutical, etc. Biocon has been working on this for a very long time and there are significant developments it has made. Biocon is currently conducting global phase-3 trials for four biosimilars (insulin glargine, trastuzumab, adalimumab and pegfilgrastim). Further, last month, it entered into an agreement with Mexico-based Laboratorios PiSA for co-development and commercialisation of generic recombinant human insulin (Rh-insulin) for the US market. This can accrue benefits in the longer run, as the company is likely to introduce the product by 2020.

The four insulin products under advanced trials are the ones that, after filings and approvals, can start contributing to Biocon’s financials much earlier. The company is likely to file for regulatory approvals in FY17 in the US and European Union, which could be a major trigger for the stock.

These events have lent confidence to the Street. Analysts at Morgan Stanley on Tuesday said 2016 could be a turning point for Biocon. Four potential product filings each in the US and EU would add credibility to its pipeline and bring market recognition. They estimate the four products to contribute $244 million by 2020 to revenues and, at 30 per cent margins, they say it implies a doubling of current profit.

In this backdrop, the analysts have raised their target price for the stock to Rs 622. This led to a surge of 7.4 per cent on the bourses to Rs 527.40 on Tuesday.

There was a word of caution, too, given the downside risks. Said Morgan Stanley, “key risks to our thesis include regulatory setbacks (three out of four Phase 3 trials are non-US), legal delays, innovator strategies (for example, shifts to new, improved products), and market challenges.”

Among other brokerages, Phillip Securities and Axis Capital have given a target price of Rs 600 and Rs 650 in March, respectively. Analysts at HSBC, in a mid-March report after the agreement between Biocon and PiSA, had said they were not making any changes to their estimates or rating. Their fair value target price stands at Rs 500.