Hold Biocon Ltd For Target Rs.410 - ICICI Direct
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Maiden foray into vaccines via Serum alliance…
About the stock: Biocon is a leading biopharma company operating in biologics, contract research (Syngene), small molecules and branded formulations
* Revenue breakup: Biosimilars (37%), generics (31%), CRAMS (29%)
* Biosimilar/Insulin US pipeline- (Launched - Pegfilgrastim, Trastuzumab, Glargine; Aspart (expected in FY22E) and Bevacizumab (delayed)
Event:
Biocon Biologics and Serum Institute Life Sciences Strategic Alliance
* Biocon Biologics (BBL), a subsidiary of Biocon, has approved the merger of Covidshield Technologies (CTPL), subsidiary of Serum Institute Life Sciences (SILS) with BBL
* BBL also entered into a strategic alliance with SILS with an offer of 15% stake in BBL with post money valuation of BBL ~ US$4.9 billion. The alliance gives BBL access to 100 million doses of vaccines/annum for 15 years with commercialisation rights (including Covid-19 vaccines) for global markets
* The strategic alliance will also develop antibodies along with a service level agreement (SLAs) for manufacturing and distribution of the vaccines and antibodies. Additionally, Biocon Biologics will establish, at its cost, a vaccine R&D division for developing both vaccines and biologics for communicable diseases. It will also make its cell culture, sterile fill and finish capacities available for vaccine production under the strategic alliance.
What should investors do?
Biocon’s share price has grown by ~2.3x over the past five years (from ~| 152 in August 2016 to ~| 358 levels in August 2021).
* The sheer size of the deal notwithstanding, the direction on the pricing front and actual ramp-up would be the key determinants, as we still await further clarifications in the due course. We maintain HOLD
Target Price and Valuation: We value Biocon at | 410 on SOTP basis.
Key triggers for future price performance:
* Ramp-up of insulin glargine after interchangeability approval in the US
* Approval of bevacizumab and insulin Aspart in the US
* Ramp up of market shares in existing biosimilars, geographical expansion
* Syngene Mangalore customer validations and approvals
* Developments on the Vaccines front.
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