Biocon Limited has been in spotlight after announcing its fourth quarter results last week, as the stock lost around 10 percent. While the company reported a good but in-line set of numbers, it seems the street is spooked on the flat performance of the biologics business on a quarter-on-quarter (QoQ) basis and there are questions regarding the biosimilars business and its prospects.
To discuss the bull and bear case for Biocon, CNBC-TV18 spoke with market expert Prakash Diwan, who is bullish on the stock, and Vishal Manchanda, Pharma Analyst at Nirmal Bang Institutional Equities, who remains bearish.
Sharing his rationale for being bullish on the stock, Diwan says Biocon has always built high expectations and what is seen now is rationalisation of these expectations and hence the downward move, even though the Q4 numbers are not bad.
“Now we need to start factoring in all the launches they have had in the US, Europe and other markets, which will give enough visibility. Other triggers are turnaround in the Malaysian unit and expansions with new alliances. It would not be unreal to expect Biocon to continue getting valued richly although competition is likely to be severe. I would still believe it would continue to be higher in terms of valuations than conventional pharma companies,” he adds.
However, Manchanda pointed out that in the next 12 months there could be 4-5 other players entering the Neulasta market, and there could be price erosion to the tune of 70-80 percent. Biocon was lucky to have got the opportunity to launch Neulasta as first player. The question is whether at those prices the market will allow them to make profits? So will it be as attractive in terms of profitability as it is now?
Similarly, although the company has approval to launch Trastuzumab, there are three other players with approval and another is waiting for clearance. “Moreover, Trastuzumab will be a difficult opportunity to execute because it is an oncology molecule and acceptance will be gradual. So one will have to factor the slow ramp-up,” he said.
Overall, the valuations built-in are for a better scenario, Manchanda observed.
Biocon is slated to take on competition by widening its product mix, said Diwan, adding that he does not expect the company to disappoint on earnings growth although multiples may not be as punchy as they have been traditionally. The price target for the stock could be around Rs 750-770 in the next 12-18 months, he noted.