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Biocon: What's in the genes?

Sep 1, 2004

Biocon is India's largest Biotechnology company with presence in biopharmaceuticals, enzymes, custom research and clinical research. Biocon evolved from being an enzyme producer in to a biopharmaceuticals by leveraging on its fermentation strength. The company was one of the first few Indian companies that seized the opportunity that was there in the bio-pharmaceutical space. Even though it is currently focused on biopharma products; it is still the largest enzymes producer in the country. The major source of revenues for Biocon is Statins, which constituted 57% of its consolidated revenues in FY04, of which, Simvastatin, the second largest selling statins in the world constitute about one-third of the company's statins sales. The largest selling statin in the world, Atorvastatin, is not a big contributor to the company's revenue as the molecule is still under patent cover in the major markets of US and Europe.

Currently the company is focussing on the anti-diabetic segment and immunosuppressants, which are going to be the focus areas for the company in future. Company has invested close Rs 3 bn in establishing a production facility for human insulin, which will be another focus area for the company. Company has also entered in an agreement with Bristol Myers Squibb for the supply of human insulin. The Supply will start in the last quarter of the current financial year. Apart from that Biocon has launched several products in the Indian markets in anti-diabetic and cardiovascular therapeutic segments.

Biocon also has a strong R&D initiative which has help it in patenting a fermentation process technology named PlaFactor which manufactures most of its fermentation based products. This gives us an idea that the company is serious on the R&D front. At present the company has 167 patent application fillings out of which 14 have received approval. Most of the approvals that company has relates to manufacturing processes of several products such as statins. Apart from in-house R&D, company has established two subsidiaries to carry out custom research and clinical research for third parties. The custom research business has shown growth in last two years and going forward this initiative can be a key growth driver.

Currently, the stock is trading at 42x its FY04 earning, which seems to be very high compared to its peers in the pharmaceutical sector, but given the growth prospects and the quality of management it can be said that this number to some extent is justified. Also another boost that can come in the growth of the company is in FY07 when Simvastatin, which has sales of about US$ 4 bn will come off patent. However in the short to medium-term, we believe, immunosuppressants and anti -diabetic products will drive the growth for the company.

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