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BIOS’ 2Q earnings was below JMFe. Generics performance was lower due to API pricing pressure and planned shutdown; meanwhile, lower licensing income QoQ led to BBL miss. The 2024 inclusions for Fulphila/ Ogivri by a large payor, two payor additions for Semglee and unbranded Humira addition by CVS are indeed the key positive readouts. bHumira’s slow ramp-up has been apparent and Aspart delay is in the price. However, Syngene’s guidance cut was the key negative development. Over the next 2-3 quarters, we expect healthy growth in existing biosimilars with formulary additions and some recovery in generics. A positive outcome for Aflibercept and Aspart/Beva approval could bolster Street confidence, in our view. We adjust our earnings to factor in lower guidance for Syngene and generics business. We continue to believe that as key levers play out over the next 2-3 years, the stock can rerate significantly. We maintain BUY with an SOTP-based Sep’24 TP of INR 340.

* Generics business slows; Syngene lowers guidance: The generics business reported a growth of 8.6%YoY (6% miss) driven by higher statin volumes and formulation sales (c. INR 2bn). A contraction in demand for some API products on account of pricing pressures, coupled with phasing of supplies due to a planned maintenance shut down impacted the performance and led to a lower guidance. In the U.S., the Company acquired an oral solid dosage manufacturing facility of Eywa Pharma Inc. located in Cranbury, New Jersey. Vizag supplies are expected to begin in FY25, post qualification by global regulators. Research Services delivered positive performances across all divisions led by Development and Manufacturing Services (led by Zoetis), while the Dedicated Centers business showed sustained growth. However, Syngene lowered their revenue guidance to mid-teens (vs. high-teens earlier) due to slowdown in US biotech funding.

* Base business momentum strong; bHumira ramp-up to be gradual: Biosimilars revenue were below JMFe at INR 19.7bn (-2%QoQ). Lower licensing revenues sequentially led to the decline. Fulphila and Ogivri gained market share in 2Q and with a large payor (100mn lives) adding them to their 2024 preferred medical drug list, growth will further pick up, in our view. The adoption of bHumira in the US has been slow but CVS’ formulary listing wef Oct’23 for unbranded adalimumab is a relief. BBL’s key near-term triggers – bAspart and bBeva are delayed by 2-3 quarters at the very least. The company expects Malaysia reinspection in 4Q. Two large payors have added Semglee which could trigger a fresh round of market share gains. The aforementioned triggers will likely sustain single-digit growth in base business. We await an update on bAflibercept (under litigation – order awaited). The clinical trials and filing for Ustekinumab, Denosumab and bHumira interchangeable trials remain on track.

* Key Financials: Revenue: INR 34.6bn (+49%YoY; +1%QoQ) and was -7%/-4% vs. JMFe/consensus. EBITDA: INR 7.4bn (+58%YoY; +4%QoQ). Core EBITDA margins recovered to 32% in line with management guidance. There were certain exceptional items pertaining to PLI accrual reversal and Stelis-acquisition related expenses. R&D for the quarter was at INR 2.6bn (10% of ex Syngene revenues).

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