Biocon is India's largest Biotechnology company with presence in biopharmaceuticals, enzymes, custom research and clinical research. It is a leading player in supply of simvastatin (a bulk drug) in the European markets (39% of sales). Let us take a review of the company.
Biocon is an integrated pharma company, which is involved into drug discovery, clinical development, drug manufacturing and sales. Its two subsidiaries, Syngene (drug discovery) and Clingene (clinical development), are working towards developing new drugs in the biopharmaceutical space.
The major source of revenue for Biocon is statins (a type of molecule), which constituted 56% of consolidated revenues in FY04. Statins are the largest selling class of drugs in the world, which inhibits the excess production of bad cholesterol in the liver. The total market size of statins is about US$ 25 bn and is likely to grow at a rate of 18% in FY05. Although the major molecule in the statins category is Atorvastatin (a value-add statin drug), it is yet to come off patent in the regulated market. The presence of Biocon in this high growth segment is the key to its future growth. Although the company has achieved a great success in these molecules (90% growth over the last 3 years), going forward, it will be an uphill task due to intensifying competition (Lupin and Ranbaxy has the same cost advantage as Biocon).
Another focus area for the company has been the anti-diabetic segment. Biocon is launching an indigenously developed human insulin product (Insugen) in the Indian market by the second quarter of FY05 under its own brand name. This will be its first product in the Indian markets. The company has also signed an agreement with Bristol-Myers Squibb to supply human insulin in bulk form to markets like the US. There are several other products in the company's portfolio in the anti-diabetic segment.
Let us look at the financial performance of the company. The sales of the company grew by 94% in FY04 on back of strong growth in the export revenue basically (statins and custom research services). The net profit grew three times due to increase in net profit margins (higher realisation on exports and overall operational efficiency).
The company has been seen as the pioneer of biopharmaceutical in the country, which is based on innovation and creativity. The success till date was basically driven by technology driven products and mainly into the bulk market. The high dependency on key products like statins (56% of sales) increases the risk profile of the company. Going forward, we might see some product launches from the company in the domestic market under its own brand name. This will post a real challenge of establishing the brand name, franchise and distribution channel for the company.
The stock currently trades at Rs 555 at a P/E multiple of 40x its FY04 earnings.
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