Pharma stock down 28% in 2022. Brokerage gives ‘Buy’ tag as ‘stock attractive’

Analysts at PhillipCapital recently interacted with the management of Biocon (BIOS) and its key subsidiary Biocon Biologics (BBL) to better understand their strategic acquisition of the biosimilar operations of Viatris.

While the brokerage believes the acquisition is an earning accretive one, the delay in approval of bBevacezumab and bAspart and elevated R&D spend led the earnings cut. 

On the contrary, it believes the risk reward for BIOS turned significantly favorable given the sharp 35% stock correction since the time of acquisition announcement. While the acquisition was initially considered to be a stretched one, the delay in drug approvals and US FDA observation for its facilities further added to the woes and led to a steady drag in the pharma stock, it added.

“At CMP, BBL seems to be valued at 45% discount to its fair value based on FY24E. Multiple earning triggers in FY25 (i.e launch benefit of bAflibercept, bAdalidumab, Rh-insulin in the US coupled with awaited bBevacezumab and bAspart) makes the stock attractive,” the note stated. PhillipCapital has recommended Buy on Biocon shares with revised target price of ₹350 apiece ( ₹370 earlier). The pharma stock is down 28% in 2022.

The acquisition, as per the brokerage, makes BBL a vertically integrated global biosimilar player. The acquisition brought Viatris’ global regulatory rights for commercialization of all its biosimilars either partnered with BIOS (bTrastuzumab, bPegfilgrastim, bBevacizumab, bGlargine, bAspart, bPertuzumab and bGlargine 300U) or in-licensed from others (including bAdalimumab from FujiFilm of Japan, bEtanercept from Lupin and bAflibercept from Momenta/Janssen) and commercial infrastructure assets. 

Viatris will provide commercial services for up to 2 years for a fee of $ 44mn p.a. (i.e ~2.8% of consolidated sales in FY24) to ensure a seamless transition.

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