Analyst corner: Retain buy on Biocon with revised target price of Rs 480

By HSBC Global Research

US market is seeing better adoption of biosimilars, thus revalidating growth opportunities for players like Biocon. Better execution and refreshed strategies for focus markets should help Biocon in pick-up of biosimilars sales. Retain buy with revised TP of Rs 480 (from Rs 455); key catalyst – strong market share gain for launched biosimilars.

US market sees improving uptake of biosimilars: After a slow start, the US market is seeing better traction for biosimilars. Since the first biosimilar approval in 2015, the FDA has approved 29 biosimilars to date of which 20 were launched in the market (this doesn’t include three launched “follow-on-biologics” insulin products). We observe the following notable points for biosimilars in the US from recent sales and prescriptions trends: volume share for recent monoclonal antibodies (mAb) biosimilars launches – trastuzumab, rituximab and bevacizumab – reached 40-60% within two years of launch, significantly higher and faster than earlier launches; the earlier market perception, that mAbs (unlike primary care products like insulins) would see relatively slower switch to biosimilars, does not hold; we infer price erosion for biologics brands is largely in the 20-50% range post entry of biosimilars; and while we do not have sufficient data yet, a specific biologics market will take anywhere from 24 to 48 months post biosimilars entry to stabilise, in our view (similar trends were observed in the EU). We assume US biosimilars market to further evolve in terms of reimbursement mechanism, thus, revalidating growth opportunities for players like Biocon.

Biocon presses reboot button: After setbacks in Biocon Biologics/BB (top management rejig, withdrawal of biosimilars sales guidance of $1bn by FY22 etc), Biocon is pushing the reboot button. It has appointed Shreehas Tambe as deputy CEO of BB, and Susheel Umesh as Chief commercial officer/CCO for emerging markets; we believe this should help it to reinvigorate strategies for biosimilars in focus markets. Currently, its biosimilar sales split is 50:50 between MoW (most of the world) markets and developed markets (DM). While it expects higher sales and growth contribution to come from DM (especially the US), we assume MoW to remain a major contributor in the near- to medium-term (recent deal for oncology biosimilars in MoW, and CCO selection corroborates same). Execution remains the most critical factor.

Retain Buy with TP of Rs 480 (from Rs 55): We remain positive on Biocon’s long-term prospects for biosimilars and we believe improved execution of launches in the US and a renewed focus for MoW markets should help it to better pick-up biosimilars sales. Market opportunities remain abundant in DM (28 products in pipeline with cumulative brand sales of ~$80b). We make 1%-7.5% changes in our FY21-23 earnings estimates per current outlook and roll forward valuations to March 2023e from December 2022e. Our revised TP is Rs 480 (from Rs 455).