Biocon Biologics Ltd. (BBL), a subsidiary of Biocon Ltd, has entered into a strategic alliance with Serum Institute Life Sciences Private Ltd (SILS) beneath which SILS would turn out to be a 15% stakeholder in BBL upon the merger of Covishield Technologies Pvt Ltd (CTPL), a wholly owned subsidiary of SILS, into BBL. Through CTPL, BBL would receive committed access to one hundred m doses of vaccines per annum for 15 years, mostly from SILS’s upcoming vaccine plant in Pune with commercialisation rights for worldwide markets.
This deal is topic to receipt of regulatory and other approvals. Other investors in BBL who personal a 10.11% stake in BBL have authorized the deal. The SILS deal values BBL at ~$4.9 bn.
Deal complementary to Biocon’s biosimilar portfolio: According to Biocon, vaccines are complementary to its biosimilar portfolio beneath BBL and the alliance presents eye-catching economics in view of the pricing of $3-10 per dose and connected operating margins of mid-30%s for vaccines in the worldwide markets. The profit-sharing deal with SILS would provide business enterprise visibility for the next 15 years. Biocon expects vaccine income would get started in H2FY23 with initial supplies mostly for COVID-19 vaccines. Eventually, supplies would incorporate numerous vaccines for infectious ailments, such as dengue, chikungunya, and so on.
Biocon plans to leverage its current industrial infrastructure for biosimilars for distribution of vaccines in worldwide markets.
We do not however incorporate vaccines in our financials as we await statutory closure of the deal. Nonetheless, our back-of-envelope evaluation indicates that vaccines could add a NPV of Rs 21 per share to our TP, which would raise our target value by 5%, beneath our base case situation. The alliance would also create antibodies for dengue, HIV, and so on.
Step-up in execution of biosimilars remains important: Biosimilars stay the core focus for Biocon exactly where it is seeking to step up execution with important launches in the US and EU. As COVID-19 has disrupted industry uptake of biosimilars, industrial execution by Biocon and companion Viatris so far have been significantly less impressive than that of competitors.
Biocon/VTRS are hoping for much better execution ahead, and the planned launch of “interchangeable” Semglee (insulin glargine) in the US towards finish-2021 could be a major increase for their biosimilars portfolio.
Retain Hold and TP of Rs 415: We retain Hold rating as we await enhanced execution for biosimilars. The launch of “interchangeable” Semglee in the US and industry share gains for launched biosimilars could be important catalysts for Biocon.