RESEARCH :: COMPANY :: BIOCON LIMITED

10th February, 2010

COMPANY PROFILE

LONG TERM BUY Biocon, promoted by Kiran Mazumdar Shaw, in 1978, is India’s largest biotechnology company (by
revenue). It is a research-driven, global healthcare company focusing on domestic and global
Approx price = Rs.258.25 unmet medical needs in cancer, diabetes and inflammatory diseases. It develops and delivers
Target price = Rs.375 novel therapeutics.
Estimated EPS = Rs 17
Projected PE = 22.05
Its presence in biopharmaceuticals, custom research, clinical development and biological provide
Investment period = 12 months
Potential Upside = 45% multiple revenue streams to balance risk, drive innovation, deliver products and accelerate growth.
Biocon Park (SEZ), Asia-Pacific’s largest integrated biotech hub worth US$20bn, is meant to meet
STOCK INFO (TTM Basis) escalating global demand for generics and biopharmaceutical products and symbolizes high value
innovation.

Sector Pharma Future Valuations:

Market cap Rs.5165 cr.
Face value Rs.5
Book value Rs.75.49
Rs.12.55 FY09 FY10E* FY11E*
EPS
Cash EPS Rs.19.25 Sales 1608.67 2378.38 2741.03
Dividend 60%
54.5% PBIDT 232.99 522.08 590.73
Sales Growth
RONW 6.68%
Interest 17.66 17.37 19.75
Debt to equity 0.11
52 week H/L 304.5/90.1 Depreciation 110.25 142 158.20
Avg Daily Vol 213856
15922.17 PBT 105.08 362.71 412.78
Sensex
BSE code 532523 TAX 4.11 54.40 66.04
Promoter Holding 60.92%
Kiran PAT 100.97 308.3 346.74
Chairman
Mazumdar EPS 5.04 15.41 17.33
Incorporation Shaw
1975
Listed
s BSE/NSE CEPS 10.56 22.51 25.24
FII/MFs 4.29/9.02 *estimated

Prepared By- At a current price of Rs 258.25, the stock is trading at 16.75x of FY10E earnings and at 14.9x of its
Shakti Rajpal FY11E earning. Its biosimilars, contract research business (contribution from BMS contract) and
Research Associate acquired businesses of Axicorp, Mylan partnership will boost the revenues of Biocon from next
[email protected] fiscal year. However, higher R&D expenses, large capex expenditure and risk of forex losses will
impact the short term profits but will give larger contribution in the long term profits of the
Reviewd By- company.
Prakash Chandra Pandey
AVP-Portfolio Management They are focusing on strategic licensing partnerships which will provide them wider global access
[email protected] and greater market penetration.

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BUSINESSES OF BIOCON:
 Syngene:
It is a wholly owned subsidiary, provides pharmaceutical and biotechnology major customized solutions in the areas of
synthetic chemistry and molecular biology. It has the largest market share in India for providing drug discovery services in
the areas of Synthetic Chemistry, Medicinal Chemistry and Biology.
In FY09, it registered a 29% growth in revenues from Rs160.4 crores in the previous year to Rs206.5 crores. Operational
margin (EBITDA) increased from Rs51.7 crores to Rs60.6 crores representing a 17% increase.

 Clinigene:
It specializes in Phase I-IV clinical trials and studies, using well-characterized clinical databases in diabetes, oncology,
lipidemia and cardiovascular diseases.
In FY09, Clinigene registered revenues of Rs33 crores as against Rs22.7 crores in the previous year and earned a profit of
Rs4.5 crores as against a profit Rs2.4 crores in the previous year.

 Biocon Biopharmaceuticals Private Limited (BBPL):

It is a 51:49 JV with CIMAB SA, to manufacture monoclonal antibodies and other recombinant therapeutics. Recently it had
commenced fully fledged operations and has primarily been engaged in the manufacturing of BIOMAb-EGFR™ for oncology
application.
In FY09, it earned revenues of Rs18.6 crores as against Rs13.7 crores and pared its losses to Rs5.1 crores from Rs13.3
crores in the previous year.

 Biocon SA:
It is a wholly owned subsidiary in Switzerland, primarily engaged in development and marketing of biopharmaceuticals in the
European region and has commenced Clinical Development of Insulin in the European markets. In FY09, it recorded profit of
Rs2.9 crores.

 NeoBiocon FZ LLC:
Incorporated in January 2008, it is a 50:50 joint venture with Dr. B.R.Shetty of NeoPharma. It is a research and marketing
pharmaceutical company based in Abu Dhabi. It has successfully commenced marketing of oncology products in the GCC
markets and is in the process of obtaining regulatory approvals for an entire range of formulations.

 Biocon Research Limited:

In the FY09, the Company formed a wholly owned subsidiary M/s. Biocon Research Limited to undertake discovery led
development research work in biologics, antibody molecules and proteins.

Highlights of some of the partnerships and the areas where Biocon is focusing on:

Biocon acquires Hyderabad-based bulk manufacturer IDL Specialty for API opportunities.
This acquisition gives them speed and cost-effective solution in terms of expanding their API manufacturing capabilities.

Biocon makes Strategic Collaboration with Mylan.

Mylan Inc. provides products to customers in more than 140 countries and is the world's third largest active pharmaceutical
ingredient (API) manufacturer and operates a specialty business focused on respiratory and allergy therapies. Around
Rs.10.6 crores of licensing income is earned during the year.

Biocon’s pact with Amylin for peptide therapeutics is in support of potential treatment of diabetes. Amylin is known and
recognized as a leader in diabetes research.

Syngene partners with Sapient Discovery to expand integrated drug discovery offerings.

Biocon acquires Axicorp for the marketing and distribution of a range of pharmaceuticals in Germany and Europe.
On a consolidated basis AxiCorp has contributed 29% to the group revenues, 7.5% to the group net profit and 30% to its top
line growth.

Biocon deals with Malaysian Biotechnology Firm to manufacture Bio-pharmaceutical products and formulation.

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Upcoming Events to watch out for:

1. IN 105 (Oral Insulin) which is an anti-diabetic drug, will contribute significantly to the total revenues of the company if
its results are positive. The results are to be disclosed in the mid of the CY10.
2. Planning for listing the contract research business will unlock large value to the business.

RESULT ANALYSIS: BIOCON LIMITED (In Rs. Crores):-

Quarterly TTM Basis

Dec'09 (12 Dec'08 (12
Dec'09 Dec'08 Y-O-Y% Y-O-Y %
months) months)
Net Sales 635.12 436.19 45.61 2177.24 1409.04 54.52
Other Income 6.42 16.22 -60.42 48.59 57.76 -15.88
Total Income 641.54 452.41 41.80 2225.83 1466.8 51.75
Expenditure 508.42 387.21 31.30 1788.2 1197.39 49.34
PBIDT 133.12 65.2 104.17 437.63 269.41 62.44
Interest 2.72 3.63 -25.07 19.7 14.32 37.57
Profit Before Depreciation & Tax 130.4 61.57 111.79 417.93 255.09 63.84
Depreciation 35.96 27.09 32.74 134.08 105.56 27.02
Profit Before Tax 94.44 34.48 173.90 283.85 149.53 89.83
Tax 11.2 5.8 93.10 32.74 19.37 69.02
Profit After Tax 83.24 28.68 190.24 251.11 130.16 92.92
Operating Profit Margin(%) 20.96 14.95 228.42 20.10 19.12 114.53
Net Profit Margin(%) 13.11 6.58 417.13 11.53 9.24 170.44

In Q3FY10, sales grew by 45.61% to Rs 635.12 cr on y–o-y basis as compared to previous year and PAT grew by around 190% to
Rs 83.24. This is mainly due to a major contribution by Axicorp (66% y-o-y growth), around 40% growth in biopharma business (all
segments in biopharma – insulin, immunosuppressant, and statin had shown very good results) and decent growth led by contract
research business.

During the Q3FY10, API registered robust sales in developed markets. Branded formulations and insulin contributed significantly to
the total revenues while capturing major share in the domestic market.

Operating Profits decreased due to forex losses of Rs.9.7 crores. Investments increased on account of drugs expansion and novel
programmes.

On a TTM basis, sales increased by 54.52%, operating profit by 62.44% and PAT by 92.92% for twelve months ending Dec’09 as
compared to same period previous year. This is due to income received from various launches of new drugs and licensing income.
Operating profits decreased due to increase in R&D expenses and input costs.

Overall, the company has performed tremendously till date.

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FINANCIALS: BIOCON LIMITED (In Rs. crores)

2008-09 2007-08 2006-07 2006-05 2005-04

Net Sales 1608.7 1054.22 985.72 789.14 712.56

Other Income 121.25 368.68 15.33 11.83 23.56
Total Income 1729.95 1422.9 1001.05 800.97 736.12
Expenditure 1496.96 795.01 735.53 586.92 498.99
EBITDA 232.99 642.76 287.42 234.85 240.17
Interest 17.66 10.17 9.88 2.64 2.73
Profit Before Depreciation and Tax 215.33 632.59 277.54 232.21 237.44
Depreciation 110.25 93.92 66.55 29.65 22.34
Profit Before Tax 105.08 538.67 210.99 202.56 215.1
Tax 4.11 81.28 16.91 30.57 18.6
Profit After Tax 100.97 457.39 194.08 171.99 196.5
Equity Share Capital 100 50 50 50 50
Basic EPS 5.05 22.87 9.70 8.60 9.83
Cash EPS 10.56 27.57 13.03 10.08 10.94
Operating Profit Margins 0.14 0.61 0.29 0.30 0.34
Net Profit Margins 0.06 0.43 0.20 0.22 0.28

During FY09, consolidated revenues of the Company increased 53% as compared to previous year. Profits (EBITDA) and Profit
after Tax (before exceptional items) grew by 14% and 6% respectively. The Net Profit for the year was impacted by loss under
exceptional item of Rs147.2 crores, on account of Mark to Market (MTM) loss incurred due to volatility in the foreign exchange
rates.
In the BioPharma segment, Statins registered a 12% growth and Immunosuppressant’s grew by 35%. Branded Formulations
account for about 12% of the overall revenues.

BALANCE SHEET: BIOCON LIMITED (In Rs. crores)

2008-09 2007-08 2006-07 2005-06 2004-05

Net worth 1535.51 1476.83 1067.81 891.32 741.4

Loans- term 128.18 127.01 128.04 37.29 27.01

Loans - working capital 395.73 128.04 58.73 67.75 49.33

Deferred tax liability 46.62 46.5 44.84 29.73 23.44

TOTAL 2106.04 1778.38 1299.42 1026.09 841.18

Net block including WIP 1383.58 1069.49 965.72 827.01 578.18

Investments 367.62 474.77 79.09 100.23 234.96

Net working capital 354.84 234.12 254.61 98.85 28.04

Deferred revenue expenses 0 0 0 0 0
TOTAL 2106.04 1778.38 1299.42 1026.09 841.18

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ANALYSIS & REPORT

Why to invest in Biocon Limited?

SECTOR:

Globally, the market for Biotech Drugs is estimated at $100bn and is growing at 18% every year. The global market comprises
US Market ($60bn), EU Market ($30bn) and ROW Markets ($10bn).
There is a big opportunity arising in this industry as it deals with innovating medicines for crucial diseases.
Opportunities are arising for companies as $25bn worth of biologics are losing patent protection by 2016. Globally, the insulin
market is expected to be $10bn by 2010. Also, it is expected that the share of Indian Crams player in the global manufacturing
market would increase from an approx 15 percent in 2005 to 22 percent by 2010.
About bio-generic drugs, in emerging markets total value is more than billion dollars and is expected to grow at 20% per annum.
Government has also taken some important measures to reduce the health care cost, they have reduced custom duty from
10% to 5% on influenza vaccine and nine life saving drugs and they have reduced excise duty from 8% to 4%.

COMPANY:

Biocon has a niche business model i.e. biotech plus high-end custom research which keeps it separate from competitors. Its
major facilities are approved for exports by various agencies.
During the year, Biocon was selected among 20 Indian companies in Forbes 'Best under a billion' list. The Syngene
Vivarium received an official accreditation by AAALAC. It won the BioSingapore Award for ‘Best Listed Biotechnology
st th
Company in Asia-Pacific’, 2009. Biocon’s Cardiology ranking increased from 91 in 2005 to 39 in 2009 with a CAGR of above
th th rd
100% and its Diabeatology ranking rose from 40 in 2005 to 12 in 2009 (Flagship brand INSUGEN is ranked 3 in the vital
market). In Oncotherapeutics, BIOMAb EGFR (for head & neck cancer) got rights to market in GCC and SAARC countries.
Syngene (subsidiary) has over 50 clients including six of the top 10 global pharma companies as its customer. Syngene
contributes almost 90% of Biocon’s CRO businesses. And it has a strong drug pipeline.

FUNDAMENTALS:

 “IN 105” (Oral Insulin), an anti-diabetic drug, has shown positive results in India. This is a great opportunity for Biocon as it
is the first one to launch the drug with unique effect. An application had been filed to USFDA for Phase 3 Clinical trials in
US. It is expected that it will fetch great value while out-licensing it. It is valued at around Rs135 crores.
 Biocon is planning to list its contract research business through its subsidiaries (Syngene and Clinigene). Thus, there is a
lot of potential to unlock the Value through their listing.
 Company received a milestone (licensing income) payment from Mylan in the quarter which is increased to Rs.17.5 crore
and expects to receive same amount for next 4-5 quarters.
 Bristol-Myers Squibb deal is likely to make a significant contribution of around Rs112.5 crores in FY10. Revenues from the
BMS deal have already commenced and peak revenues are expected next year. Currently, Biocon achieved 75% potential
from its BMS deal and it has already contributed 30% to Syngene’s revenue.
 Biocon launched its immunosupressant, mycophenolate mofetil, post its patent expiry on May 9, 2009, this provides them
to enter into a Rs225 crore market. Biocon is supplying the product to three customers and it has already captured a 20%
market share. 57% of the market has converted into generics in the first six months.
 st
INSUGEN 100 IU, INSULIN Glargine brand, BASALOG were launched in 1 quarter of 2009-10. Glargine received
approval and is planning for global registration.
 Expectations of new launches in the US, EU and ROW markets. EU insulin market is worth $2bn and approval is expected
by FY11. Insulin and others share 17% of total sales in FY09.

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 T1h has shown good results in Phase II in Rheumatoid Arthritis (RA) as well as Psoriasis. Company plans to commence
Phase III trials for Psoriasis by the end of this calendar year and Phase III for RA in the next calendar year. This will fetch
huge revenues if commercialized.
 Revenue from branded formulation business contributes 12% of total revenues and expected to increase to 25% over 7-10
years.
 Revenues from IDL Specialty Pharma business would start coming from Q4FY10 but fully fledged impact will be seen from
April 2010.

Notes: Figures and graph sourced from www.bseindia.com and capital market.
END

FUNDAMENTAL ANALYSTS DESIGNATION CONTACT NO.

0124 -3024862
Rajesh Gupta Chief Investment Officer [email protected]
[email protected]
Prakash Chandra Pandey AVP-PMS 0124-3024864
[email protected]
Tanisha Jolly Research Associate 0124 – 3024864
[email protected]
0124 – 3024840
Varun Khanna Research Associate
[email protected]
0124 – 3024840
Shashi Srivastava Research Associate
[email protected]
0124 – 3024869
Shakti Rajpal Research Associate
[email protected]
0124 – 3024869
Suvarna Binjola Research Associate
[email protected]

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