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Biocon: Life after Nobex
Dec 6, 2005

Biocon’s research partner Nobex, a US based company has filed for bankruptcy yesterday. In this article, we take a look at what was the collaboration between the two companies and whether the bankruptcy will put the break on Biocon’s oral insulin programme.

About Biocon
Biocon is India's largest biotechnology company with presence in biopharmaceuticals, enzymes, custom research and clinical research. It started as an enzymes (organic chemicals used in fermentation process) manufacturer and leveraged its expertise in fermentation to evolve into an integrated bio-pharmaceutical company with strengths in microbial techniques, manufacturing and marketing. The company has two subsidiaries – Syngene and Clinigene – which are involved in custom research and clinical research respectively. These subsidiaries contribute over 11% to the total consolidated revenues of the company (as per 1HFY06 numbers).

About Nobex
Nobex Corporation is a privately held, developmental stage, drug delivery company based in the US. The company is a strategic ally to global pharma and biotech companies to develop oral delivery of protein, peptide and small molecule drugs currently available only by injection.

Facts about the collaboration
The global market for insulin is pegged at US$ 4 to US$ 4.5 bn. Major players in the API/bulk drugs and formulations segments currently are Novo Nordisk, Eli Lilly, Aventis and Wockhardt. Biocon is a major player in the bulk segment. Biocon had recently launched its human insulin product ‘Insugen’ in the Indian markets and is currently in the process of registering it in semi-regulated markets worldwide.

As far as its oral insulin programme is concerned, the company had entered into research collaboration for the development of the same with Nobex Corporation, US in October 2004. Biocon’s investment in Nobex till date is US$ 1 m in common stock and US$ 4.8 m in convertible loans. Currently, Biocon is progressing on track in terms of pre-clinical development both in the US and India. It expects to file an IND (investigational new drug) in India by the end of 2005 and in the US by the end of FY06 and begin clinical trials in FY07. However, the product will not be in the market before 2007-08.

The scene after Nobex’s bankruptcy
Nobex Corporation filed for bankruptcy under Chapter 11 of the US Bankruptcy laws yesterday. Despite this, Biocon does not expect any disruption in its oral insulin programme and is in fact looking to acquire the intellectual property (IP) assets and other scientific-related platforms of Nobex. It must be noted that under the collaboration, while Biocon was to use Nobex’s product development capabilities to manufacture insulin, the latter was responsible for providing the oral peptide-delivery technology for the same. As a result, assuming that Biocon buys out the intellectual rights / IP assets from Nobex, we believe that Biocon’s oral insulin project is not likely to be affected.

Recently, Biocon inked an agreement with the US-based Bentley Pharma for the co-development of an intra-nasal insulin spray giving it the marketing rights in the countries of Asia and Africa. As a result of this alliance, Biocon is now present in all the three forms of insulin delivery i.e., injectible, oral and inhaled. Currently, the spray insulin is undergoing Phase II clinical trials and it will take around three to four years for a market launch.

What to expect?
At the current price of Rs 499, the stock is trading at a price to earnings multiple of 30.4 times its annualised 1HFY06 earnings, which is at the higher end of our valuation spectrum. With ‘Simvastatin’ and ‘Pravastatin’ going off patent in the US markets in 2006, the statins markets provide tremendous potential and Biocon intends to capitalize on the same. However, considering the fact that statins have been witnessing pricing pressure and severe competition, the company is planning to reduce its dependence on statins by focusing on human insulin, immunosuppressants and branded formulations, which are expected to be the new growth drivers. The company’s clear strategy of using statins and other generic products as short-term cash-flow generators and investment in proprietary technology augurs well for investors who can remain invested for the long-term.

Having said that, the pricing pressure on the statins front in the European markets will continue to adversely affect the topline of the company this fiscal. Moreover, Biocon plans to significantly increase R&D investments to support a discovery led research strategy, which, though expected to reap benefits in the long-term, is likely to keep margins under pressure. We shall soon update the research report on the company.

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