Biocon down 7% on weak outlook for biopharma business

Nalinakanthi V BL Research Bureau | Updated on March 12, 2018

The stock of biopharma company Biocon fell over 7 per cent in trade on Friday. This was in reaction to near-term concerns which may temper growth over the next two to three quarters. Revenues from the core biopharmaceuticals segment, which constitutes over three-fourth of Biocon’s overall business, declined in the June quarter (after adjusting for the licensing income). This was on two counts. One, Biocon’s active pharma ingredient (API) supplies for patented drug Fidaxomicin to Cubist Pharmaceuticals (erstwhile Optimer Pharmaceuticals) has been impacted due to a re-positioning and re-launch initiative by Cubist. Being a high margin product, this will impact Biocon’s revenues and operating margin in the forthcoming quarters.

Second, geopolitical problems in the Middle East and North African (MENA) region, a meaningful market, have further added to weakness in the biopharmaceutical business. With the political situation unlikely to improve in the short term, Biocon’s sales in this region may remain weak in the subsequent quarters.

Revenues from the research services business (Syngene and Clinigene) have also slowed from the healthy 25-30 per cent levels to 12 per cent in the June quarter. While the extension of full time equivalent (FTE) contract with the US biopharma major Bristol Myers Squibb (BMS) until 2020 is positive, the company has made significant investment to augment Syngene’s capacity. While the costs have already been incurred, the revenue accrual from this investment is likely to happen only in the second half of the fiscal. This may add to margin pressure over the next one-two quarters.

Biocon’s research spend is likely to head up in the forthcoming quarters; trials for insulin analogues in developed markets and filing of recombinant insulin in the US and Europe may commence in the next few quarters. The company has also commenced own filing of ANDAs (abbreviated new drug applications) for the US market. Though these investments will help in the long term, margins in the interim period may remain muted.

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Published on July 25, 2014
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