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Generics lead the way in Q4, Biosimilars to drive the future

Biocon has far exceeded street’s expectations, delivering a strong performance across all key parameters - 13%/18%/100+% YoY growth in Revenue/EBITDA/Adj. PAT. It was 7%/16%/+64% above street consensus. Generics’ outperformance with 46% YoY growth, enabled by new launches, played a key role in company’s exemplary performance. Research service segment has grown 11% YoY, riding on the tailwind of Biotech funding revival. Biosimilars too maintained growth momentum with 4.5% YoY growth during the quarter. Going into FY26, Biocon has 3-4 biosimilars’ launches lined up, providing clarity on growth over near to medium term. The incremental revenue from these launches will lead to EBITDA margin expansion over the next 3 years. We estimate Biocon Revenue/EBITDA/PAT to grow at 13%/21%/35% CAGR over FY25-28E. Improved cashflows from these opportunities, planned restructuring and fund raise in the business is also likely to improved debt burden on the company (not factored in), helping delivering higher than estimated earnings growth over next 3 years. Thus, we remain positive on the stock and maintain a BUY rating. We have rolled over the target horizon by a quarter leading to a 12% upwards movement in TP. Based on a SOTP valuation, we set a target price of INR 447, implying a 35.5% upside.

* Strong generic outperformance riding on new launches: 4Q was historically the strongest for generic segment with 46% YoY and 53% QoQ growth. This was enabled by new launches, namely gRevlimid, gDasatanib in US and gLiraglutide in UK. Large part of volume share in gRevlimid has already been complete, with guidance of remaining year being lumpy for the product. The company also initiated supplies of Tacrolimus to China, with partner expected to initiate commercialization in Q1FY26. Adjusted for these incremental sales, we believe there was 4 to 5% YoY revenue growth. The company gave guidance of USD 50mn CAPEX for generics in FY26.

* GLP-1 to drive growth for generics going ahead: The company believes that the peptide portfolio, especially GLP-1s are going to be one of the key drivers for future growth. The company intends to cater to the emerging markets, representing opportunities which have been overlooked by the innovators. In the near term, volumes will be driven by Liraglutide in the advanced markets and Semaglutide in the emerging markets. Biocon has already invested in large-scale drug substance capacity of GLP-1s, which was capitalized in FY25 thus leading to increased expenses. Biocon is also commissioning a new injectable GLP-1 facility FY26. The management indicated that the existing capacity will sustain till 2031, when Semaglutide expiry in US and Europe opens up new markets.

* Insulin aspirations: Insulin represents a large opportunity due to Innovators pulling out of numerous geographies. Biocon has laid down USD 100mn capex plan for BBL over next couple of years. Majority of this is towards enhancing the capacities in Malaysia, effectively doubling the drug substance capacity from current levels. Apart from innovators, Biocon would be one of the largest insulin manufacturers globally. Biocon intends to play the “Diabesity” (Diabetes + Obesity) market with presence in both Insulin and GLP-1s

* Research services shows green shoots: Segmental revenue grew 11% YoY and 8% QoQ. With the Biotech funding revival remaining intact, the company expects 4Q exit double digit growth in base discovery business to continue. The Baltimore facility is expected to commercialize from 2HFY26. This facility gives Biocon strategic footprint and helps the company to be located closer to the clients, thereby improving resiliency of supply chain for the customers.

* Key product launches – driver for future growth: Biocon’s recently launched bStelara has access to 70% of market in the US and Biocon is expecting it to be one of the most successful launches for the company with innovator losing most of its coverage by Jan 2026. Fulphila/Ogivri are now at 30%/26% market share. Biocon is also ramping up Bevacizumab and is targeting for 1HFY26 launch. For Aflibercept, Biocon will enter the Canada market (first to enter) in July 2025, and the US market in 2026. Biocon has already received positive opinion from the EMA for Denosumab, with approval expected in couple of months; USFDA approval is expected by the end of the year. Aspart is awaiting approval; the same is expected in 1HFY26. Biocon is also expecting approval for generic Copaxone in the US. All these launches will drive future growth and will come with higher Gross Margins relative to base business, which along with operating leverage will lead to upward movement in EBITDA margins.

* Biologics: Fulphila and Ogivri are now enjoying 30% and 26% market share. Fulphila has benefitted from exit of a competitor. Yesintek too has been doing well. The company is well positioned to take advantage of diabetes/obesity with insulins + GLP-1 capabilities. Core EBITDA of the segment has been impacted by some pricing pressure, however new launches will help turn this around.

* Key financials: - Biocon's Revenue /EBITDA/Adj. PAT for the quarter were INR 44.2bn/10.8bn/3.3bn grew 13%/18%/100+% YoY; were 14%/44%/+77% vs JMFe and 7%/16%/+64% vs street consensus; - The outperformance in topline is driven by Generics business growing 46% YoY and 53% QoQ. - The company had launched gRevlimed and gDasatinib in the US during the quarter, and it helped them to report strong jump in both revenue as well as profits. Since the launches were at fag end of the quarter, our expectations were lower. Adjusted for these incremental sales, the Topline and EBITDA numbers are more aligned with JMFe. - Gross Margins come in at 66.7% (vs 67.3% JMFe); - EBITDA margins at 24.4% (vs 19.4% JMFe), expansion due to operating leverage partially offset by higher than anticipate gross cost; - Adj. PAT margin of INR 3.25 bn (vs INR 1.84bn/1.98bn JMFe/Street)

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