Biocon stock: Rich valuations, regulatory news flow may add to volatility

Biocon’s second biosimilar approval, pegfilgrastim (Neulasta), for launch in the US market with partner Mylan, is being seen as a booster dose for the medical industry. However, what came as a shock was the nearly 12 per cent fall in Biocon’s stock price in intra-day trade on Tuesday, in the aftermath of the news of the approval coming in.

First the bad news: after reaching an all-time high of Rs 695, which the Biocon stock scaled on Tuesday during intra-day trade, analysts said trading valuation was high.

Since October last year, the stock has risen almost 90 per cent versus an 11.5 per cent rise in the Sensex.

According to analysts, the other issue that may be playing on the minds of investors is the rising competition for Biocon’s pegfilgrastim product, with more players like Sandoz, Apotex and Coherus, among others, being in the race. Higher competition may limit the gains for Biocon.

However, the good news is that analysts are still positive on Biocon. The approval of oncology treatment drug pegfilgrastim (Neulasta) improves Biocon’s earnings outlook.

In an e-mail response, Biocon said, “The product launch will contribute to its previously guided FY19 target of $200 million revenue from the Biologics business.”

Analysts expect Biocon to gain 20-25 per cent market share, and after factoring in a 20-25 per cent price erosion in the first year, they see its earnings improving to Rs 12-16 (from Rs 6.2 in FY18).

Biocon-Mylan’s plan to launch this product in the coming weeks will provide an early mover’s edge.

Ranvir Singh at Sytematix Shares said that product ramp up may be gradual, and though it may gain 20-25 per cent market share over time, margins may see a squeeze if competition increases.

Yet, Singh feels that the development is positive as Biocon’s biosimilar portfolio is shaping up well.

The company had already secured approval for trastuzumab (breast cancer treatment) in December 2017, though its launch is slated to be sometime later. Besides, there are at least four more approvals pending.

The latest approval also reduces concerns on observations that Biocon’s Bengaluru plant received a few days back.

While citing the observations as minor, analysts had not ruled out a delay in approvals.

Experts at Morgan Stanley had said that pre-approval inspection observations provided by the USFDA and the European regulator (EMA) may result in near-term volatility, but the long-term story seems intact with monetisation of key products in the coming quarters.