Apex Capital

Invest Wise

Biocon Limited
August 7, 2020

The Next (Bio)Pharma Giant?

Contributors

Mayank Choraria Sheersh Jain

Intern, Apex Capital Founder, Apex Capital

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Biocon Limited

Initiating Coverage
With groundbreaking discoveries, back to back USFDA approvals, exhaustive pipeline of complex
biosimilar & biologic molecules, partnerships with marquee pharmaceutical companies and an extremely
transparent management - having the vision to make healthcare accessible to all, we believe Biocon is set
to become the next (Bio)pharmaceutical giant in India catering to the whole world.

Industry Biotechnology
Stock Rating Intrinsic Value
Under Valued Rs. 496 CMP Rs. 400

Biocon Limited is Asia’s largest biopharmaceutical company Potential Upside 24%

based in Bangalore, India, led by Kiran Mazumdar-Shaw, the Market Cap Rs. 48,339 Crore
founder. Biocon is world’s leading player with an exhaustive
pipeline of Biologics and Biosimilars. P/E 65.35x

Biologics are agents derived from living organisms rather P/B 6.62x
than chemicals that date back to the beginning of the 20th 52W High Rs. 446.95
century. But recombinant DNA technology developed in the
1970s and 1980s launched a new era: synthesized biologics 52W Low Rs. 211.05
instead of animal-derived agents. The price tags on some of Dividend Yield -
the biologics were in the tens of thousands of dollars, which,
at the time, seemed expensive, and lead to Biosimilars. Beta 0.73

Unlike small-molecule generics, biosimilars are not exact copies of their reference products (biologic). A
small-molecule drug may comprise a couple dozen atoms; a biologic, hundreds or thousands. The
chemical processes used to make small-molecule drugs ensure an exact copy (although the inactive
ingredients to make the pill that contains the drug may differ). The fact that biologics are derived from
living organisms also adds some slight — but not necessarily meaningful — variability.
Biocon is the first Indian company to have a biosimilar approved and launched in US. So far, Biocon has 2
biosimilars launched in US, 1 approved by USFDA (to be launched in FY21), while 2 under review. In EU,
Biocon has 3 biosimilar launched, 2 approved, while 2 under-review. Biocon has launched and approved
biosimilars throughout the world and has a combined pipeline of 28 molecules.
Biocon has a diversified business model with 4 different verticals, with dedicated management to each
vertical, helping Biocon excel in all verticals. While Biosimilar division (caters to the development & sales
of biosimilars and novel biologics) is the future growth engine of the company, the Generics (aka small
molecules, caters to the API manufacturing industry) division and Research Services divisions (caters to
CRAMS and offer research services) is what keep cash coming in the company.
Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in
 Apex Capital
Invest Wise

In FY20 Biosimilar, Generics and Research Services division, each account for 30-31% of the consolidated
revenue of the company, while the remaining 8% revenue comes from the Branded Formulations division
of the company. Biocon, over the years, has transformed itself from an enzyme making company to both
forward and backward integrated, full-fledged pharmaceutical company.
Biocon has deep strategic alliances with pharma giants across the globe. Biocon’s partnership with Mylan
is long standing from 2009 and expanded its scope of partnership in 2013 for biosimilars launch of 11
products. As Biocon’s success became well evident to the world, in 2018, Sandoz, the Novartis Biologics
division announced its partnership with Biocon for 2026 Biosimilars Second wave wherein Biocon is a
partner in Profit sharing as well.
In July 2018, the FDA published its Biosimilars Action Plan, acknowledging the lack of competition in the
biologics space recognizing the numerous barriers to the development and utilization of biosimilars. Yet,
acceptance of biosimilar by the healthcare community is a key risk ahead.

“74% of physicians who responded reported ‘physician confidence’ as one of the biggest
barriers to widespread adoption of biosimilars.”
Earlier during the year, Biocon received the Drugs Controller General of India’s approval to conduct a
clinical trial in moderate to severe patients with COVID-19 complications and got approval to use Biocon’s
novel biologic ‘Itolizumab’ to be used in moderate to severe COVID cases.
Biocon’s partner Equillium plans Itolizumab's global clinical trial for treatment of COVID-19. Biocon’s
research services subsidiary Syngene is collaborating on research projects related to vaccine
development, which could represent a longer-term solution for fighting the coronavirus pandemic.
While multiple Indian companies have forayed into manufacturing and marketing generics in developed
markets, only one Indian player seems to be trying to make a dent in the biosimilar space.

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Contents
Investment Rationale ......................................................................................................... 1
Need for Biosimilars.............................................................................................................................. 1
Huge Addressable Market..................................................................................................................... 2
Biocon - India's Largest Biopharmaceutical Company ........................................................................... 3
Strong Future pipeline .......................................................................................................................... 5
Well Diversified Business Verticals ........................................................................................................ 7
Strong Financials ................................................................................................................................. 12
Dedicated Management for Each Vertical ........................................................................................... 13
Aggressive Capex Plans ....................................................................................................................... 14
Management Transparency and Accountability are key to Biocon’s success ....................................... 15
Strategic alliances: A big positive ........................................................................................................ 15
Mission 10 cents ................................................................................................................................. 16
RISKS ................................................................................................................................ 18
R&D does not always capitalize .......................................................................................................... 18
USFDA is a big trigger! ........................................................................................................................ 19
Acceptance of Biosimilars ................................................................................................................... 20
Originator Company’s Strategies to Slow Market Growth of Biosimilars ............................................. 20
COVID-19 Impact.............................................................................................................. 21
Story So Far ...................................................................................................................... 22
Financial Summary ........................................................................................................... 23
Story in Charts .................................................................................................................. 25
Price Target & Valuation Assumptions ............................................................................. 27

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Investment Rationale
Need for Biosimilars
Pharmaceutical Companies invest tremendously large sums in R&D over multiple years to create a
combination of molecules (called original drug). It might take 5 years for companies to develop a new
drug and they might still need another 10 years to clinically test the product and gain approval from the
regulatory agencies. This is an extremely capital intensive process and the only way to remunerate the
investment of the pharma company is to protect the investment through patent protection, which
generally lasts for 20 years, and no other company can sell the same compound during that time. This way
the companies are incentivised to invest more in research thereby ensuring a steady supply of new
innovator drugs.
Once the patent is about to expire, many companies race to make a copy of the same combination of
molecules, without the need to invest in R&D of its success. These copies of drugs are called generics and
companies can replicate the manufacturing process with relative ease. For a company to market a generic,
the US FDA must agree (to be sold in US) that the generic is interchangeable with the original drug and
that it contains the same active pharmaceutical ingredient (more commonly referred as API).
Ever since modern medicine started to emerge post the Industrial Revolution, simple molecules have been
used to treat most diseases by killing the bad cells or foreign virus in human body. While these
formulations were highly effective against some illnesses, it was proving particularly ineffective against
more complex diseases like cancer or diabetes.
Our immune system has evolved over millions of years to specifically defend against intruders by finding
and destroying anything that is not supposed to be inside our bodies. But cancer or diabetes is not like
most diseases. It is not caused by an invasion of a foreign pathogen. Instead, it is a by-product of rogue
cells within our body that do not necessarily act the way they should. Similarly, diabetes is caused when
insulin produced naturally by the pancreas is absent or insufficiently produced.
To this end, using simple molecules to defend against a barrage of
mutating versions of our own cells is an exercise in futility.
In the process of killing the bad cells, these drugs will
simultaneously annihilate the healthy cells too. So, the cut-slash-
kill method is not particularly effective. What we instead need is a
'biologic' or a complex protein isolated from natural sources that
can mimic our immune cells.
We have had vaccines for a good half century now and considering
1
most vaccines are complex living agents that resemble a disease-
causing microorganism, they fit under the ambit of biologics well.

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

However, it's only in the last 25 years that new developments in genetic engineering/recombination
techniques and targeted therapies have begun to open up new opportunities and this, in turn, has
breathed new life into the field of biologics and with it, its copycats — biosimilars.
A biosimilar is not equivalent to the original biologic, instead is highly similar in the way that it interacts
with the human body. The design and creation of a biologic drug is complicated enough that a biosimilar
is not going to be precisely the same as a biologic.
Biologics, though
highly complex and
innovative, are
often associated
with high costs and
limited patient
access. Fortunately,
more affordable
options for many
patients who rely on
biologic treatments
are beginning to be accepted by the market: Biosimilars.
What makes Biosimilars cost effective is the cost saved in the very many clinical and human trials that a
biologic need to go through. Biosimilars are important because they have an opportunity to provide
competition in the market and expand patient access to critical medicines, much like the advent of generic
medications more than 35 years ago.
With an ageing population and growing demand for treating chronic conditions, biologic use is on the rise.
And in an environment where health decisions are increasingly made based on value and cost, biosimilars
will play a vital role in improving patient access to needed medicine. The launch of new biosimilars over
the next decade could save consumers as much as $250 billion and boost access to biologic treatments for
an additional 1.2 million patients by 2025.

Huge Addressable Market

According to a recent report by Morgan Stanley, as many as nine drugs in the biologic’s category have
either gone off patent or will do so by 2025. Their total revenue was $62 billion (around Rs 4.3 lakh crore)
in 2018. This creates a major opportunity for their respective biosimilars. The research firm estimates that
revenue of these biosimilars will grow by 24% annually for seven years to $13.3 billion in 2025 (around Rs
93,000 crore) in the US and Europe alone. That offers a big opportunity for companies focusing on this
segment. It is estimated that the global biosimilars market has touched $15 billion by 2020. In December 2
2018, NHS England, which oversees Britain’s health services, saved 300 million pounds by switching to
biosimilar of Adalimumab after its patent expired.

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

According to a report by Associated Chambers of Commerce of India (Assocham), the global market for
biosimilars will be $240 billion and the Indian market will be over $35 billion by 2030. Indian pharma
companies including Biocon, Glenmark Pharmaceuticals, and Zydus Wellness are actively focusing on the
biosimilars market. Biocon, for instance, earned Rs 2,000 crore or nearly 30% of its revenue from
biosimilars in FY20. A lot will however depend upon factors such as access to critical technology,
regulatory guidelines, and the price difference between biosimilars and the underlying biologics.

Biocon - India's Largest Biopharmaceutical Company

Biocon Limited is India’s largest biopharmaceutical company based in Bangalore, India, led by Kiran
Mazumdar-Shaw, the founder. Over the years, Biocon has continuously focused on delivering affordable
innovation. The organisation is committed to reduce therapy costs of chronic diseases like diabetes,
cancer, and autoimmune diseases by leveraging India’s cost advantage to deliver affordable healthcare
solution to patient’s partners and healthcare systems across the globe.

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Company has many feats under them:

• 1st biosimilar Trastuzumab to be approved anywhere in the world developed and launched in India
by Biocon Biologics (in 2014).
• 1st company from India to launch a biosimilar in Japan: Insulin Glargine (2016).
• 1st company globally to get US FDA approval for biosimilar Trastuzumab; 1st company from India
to have a biosimilar approved in the U.S. (2017). Launched in U.S. in December 2019.
• 1st company from India to have a biosimilar commercialized in U.S.; 1st biosimilar Pegfilgrastim
approved by FDA (2018).
• 1st Company from India to launch biosimilar Trastuzumab in Europe.
• Ogivri, co-developed by Biocon Biologics and Mylan, is the first trastuzumab biosimilar approved
and launched in Australia as well as Canada.
• Semglee, co-developed by Biocon Biologics and Mylan, is the first Glargine biosimilar approved
and launched in Australia. In June 2020, the U.S. FDA approved New Drug Application (NDA) for
Semglee.
• 1st Indian player to launch biosimilar Trastuzumab, Ogivri, in the U.S. through our partner Mylan.

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Strong Future pipeline

Biocon’s target to have at least eight biosimilars available in developed markets through the partner-
Mylan, by the end of FY22 viz. Trastuzumab, Pegfilgrastim, Adalimumab, Bevacizumab, Etanercept,
Insulin Glargine, Insulin Aspart and rh-Insulin, addressing an estimated market opportunity of up to
USD $33 billion. Their pipeline is expected to deliver three additional molecules between FY23 and FY25 5
which are undisclosed now.

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

PLEASE NOTE: INSULIN GLARGINE IS APPROVED IN US IN JUNE 2020 BUT NOT COMMERCIALIZED

Lastly on the Biosimilars front, Company has launched its product in several Developed and Pharma-emerging
markets in collaboration with local players. Hence company aspires to become a global leader in the biosimilars
segment. Biocon remain committed to impact 5 million patient lives and attain a revenue milestone of USD 1 6
billion in Biosimilars Division which translates into 70% CAGR for next two years.

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Well Diversified Business Verticals

Biocon has 4 business divisions namely Generics, Biosimilar, Novel Biologic and Research Services.
1. Generics Business

Biocon’s Small Molecules (Generics Business) manufactures APIs and crossed an annual revenue
milestone of Rs. 2,000 crore in FY20 generating a revenue growth of 18% YoY. This was the second
consecutive year of high-teens growth reported by the business despite the challenging environment of
the global pharmaceutical industry. As the biggest contributor to Biocon’s consolidated revenue, the Small
Molecules/Generics business has been a cornerstone of the Company’s success story over the last two
decades.

Business reported robust growth in the U.S., driven by consistent client acquisitions and a higher market
share for the three formulations commercialized under Biocon’s own label. This was supplemented by the
API business which benefitted from improved price realizations and an optimized product mix.
Immunosuppressant sales increased in key geographies, whilst the demand for statins and specialty APIs
remained stable.

Compliance

Biocon’s formulations manufacturing facility for oral solid dosages in Bengaluru completed a Pre-Approval
Inspection (PAI) by the U.S. FDA with zero observations. Company’s Small Molecules APIs manufacturing
facility at Biocon Park, Bengaluru received an EIR (Establishment Inspection Report) from the U.S. FDA for
the pre-approval and GMP inspection held in January 2020 with a VAI (Voluntary Action Indicated) status
for the five observations. Additionally, company received an EIR from the US FDA for the Small Molecules
API Manufacturing Facility and GMP inspection conducted in February 2020 with a VAI classification for
the observations, which indicates closure of the inspections.

Facility/Usage Status

Oral Solid Dosage, Bengaluru Pre-Approval Inspection (PAI) by the U.S. FDA with zero observations

Small Molecules APIs, Biocon Park, EIR (Establishment Inspection Report) from the U.S. FDA and VAI (Voluntary Action
Bengaluru Indicated) by GMP
7
Small Molecules APIs, 20th KM, Received an EIR from the U.S. FDA and VAI from GMP
Biocon Campus, Bengaluru

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Strategy

Over the past two decades, Biocon has attained a commanding share of the global APIs market with its
distinctive portfolio of fermentation-derived statins and immunosuppressants with a strong Generic
Formulations business in the U.S. with three commercialized products capturing mid- to high-teens
market share in a very competitive market.

The company’s strategy is to build a portfolio of fermentation-based and other differentiated but complex
Active Pharmaceutical Ingredients (APIs), with vertical integration to supply Generic Formulations to the
U.S. market.

Despite being a late entrant, the company believes that the Generic Formulations business offers
attractive growth opportunities with the market estimated to reach USD $96 billion by 2023. Between
2020 and 2023, patents will expire on drugs that have combined sales of approximately USD $127 billion.
Growth in markets other than the US and EU will be driven by increased generics penetration, ageing
populations, and expanded patient access.

To secure anticipated growth in fermentation-derived APIs, company commenced construction work on

a greenfield, fermentation-based manufacturing facility in Visakhapatnam, Andhra Pradesh in FY20 with
an estimated of capex of Rs. 600 crore, which will enable company to deliver vertically integrated strategy
of developing and commercializing our own Generic Formulations and service the needs of our global API
customers. Company expect this facility to be operational over the next three years followed by
commercialization based on regulatory approvals in major markets.
2. Biosimilar Business

Biocon Biologics, headed by Dr Christiane Hamacher (CEO and Managing Director), is a global company
focused exclusively on biosimilars with full vertical integration, have one of the broadest and deepest
biosimilars platforms in the industry and many firsts, including the first U.S. FDA approval for a biosimilar
Trastuzumab (partnered with Mylan). The latest U.S. FDA approval of our Insulin Glargine (partnered with
Mylan, third biosimilar to be approved) paves the way for its launch in the U.S. later this year.

The Biologics business ended FY20 on a strong note, reporting a 29% growth in revenue at Rs. 1,951 crore.
Biocon Biologics became the first company from India to have two biosimilars commercialized in the U.S.
through its partner Mylan, with Ogivri™ (biosimilar Trastuzumab) being commercialized in the market in
end 2019 and Fulphila® (biosimilar Pegfilgrastim) in 2018. The company has also commercialised many
biosimilars in Europe and Most of World (MoW) Markets becoming the only company in the world with
such a strong pipeline of biosimilars.

Towards the end of FY20, company commissioned new state-of-the-art biologics drug substance facility,
for monoclonal antibodies, and expect this facility to begin commercial operations in early FY22, subject
to regulatory approvals in various markets. 8

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Company also expanded its manufacturing capacity for Pegfilgrastim drug substance. This new
manufacturing facility in Bengaluru received U.S. FDA approval in November 2019, also European
Medicines Agency (EMA) approval and has started commercial operations since.

Company’s 4 years old Insulin facility in Malaysia, hosted multiple regulatory inspections successfully
during FY20 and received EU GMP certification and closed US FDA inspection as well. Company also
expanded R&D footprint in the fourth quarter of FY20 by acquiring Pfizer Healthcare India Ltd.’s R&D
capital assets to set up a 60,000 sq. ft. world-class integrated R&D facility at TICEL Bio Park in Chennai.

As moving ahead, Biocon is confident of capitalizing on the new global opportunities. Biocon Biologics
has set a target of impacting 5 million patient lives and attaining a revenue milestone of USD 1 billion
in FY22.

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Branded Formulations Business

Biocon’s Branded Formulations business is making an impact in India through its wide portfolio of branded
small molecule generics, biosimilars and novel biologics in the chronic disease segments of diabetes,
cancer, end-stage renal illnesses, immune disorders, and other life-threatening conditions.

Segmental revenue stood at Rs. 536 crore, which contributed 8% to FY20 consolidated revenue, declined
18% primarily due to significant downward pricing pressures in leading assets and increased competition
for some of key brands in India.

Biocon’s top brands continue to shine among flagship brands, Insugen® continued to hold its position
among the Top 3 human insulin brands in India while Basalog® was the No. 2 brand of Insulin Glargine in
the country. CANMAb™ retained its position as the No.1 brand of biosimilar Trastuzumab in India, giving
a firm foothold in Oncotherapeutics.

Branded Formulations business, starting FY21 will be merged and reported under Biosimilars Segment.

3. Novel Biologics Business

Biocon’s quest to develop affordable therapies and impact global healthcare led them to invest in
developing novel biologics and novel targets in the area of large molecules, at a time when the pharma
industry in India was focused on the safer business of manufacturing generic medicines. Biocon’s
considered scientific risk paid off and today they have a pipeline of novel assets comprising early and
advanced stage programs spanning multiple modalities including recombinant proteins, novel fusion
antibodies and monoclonal antibodies (mAbs) aimed at diabetes, cancer and autoimmune / inflammatory
diseases. These segments are expected to capture the majority share of global healthcare spending over
the next few years.

Major Molecules in Pipelines:

Insulin Tregopil - Insulin Tregopil is a first-in-class oral prandial insulin molecule for post-prandial
glycaemic control. Company recently completed a phase-II study on type-2 diabetes in India and
is now in the process of submitting a marketing authorization application to Drugs Controller
General of India (DGCI).

FmAb2 - Biocon’s immuno-oncology program focusing on development of novel bi-functional

fusion antibodies is housed in its wholly owned subsidiary Bicara Therapeutics, based out of
Boston in the U.S. Bicara received a “study may proceed” advice from the US FDA to initiate a
phase I safety trial, following a successful Investigational New Drug (IND) application in late FY20.

Itolizumab - ALZUMAb™ (Itolizumab/CD6) novel biologic, launched in India for the treatment of 10
chronic plaque psoriasis in 2013, is being repurposed for the prevention and treatment of COVID-
19 complications.

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Biocon’s partnership with Equillium: Having biologically and clinically validated CD-6 as a target for
autoimmune diseases, Biocon had out licensed Itolizumab to U.S. based biotechnology company
Equillium in 2017. Equillium has three clinical studies underway across the globe for Itolizumab in acute
graft-versus-host disease (aGVHD), severe Asthma and Lupus Nephritis.

4. Research Services Business (Syngene International)

Syngene International, Headed by CEO Jonathan Hunt, is Asia's largest contract research & manufacturing
organization, which supports R&D programs from lead generation to clinical supplies for companies all
around the world. During FY20, Syngene’s revenue grew 10% to Rs. 2,012 crore. It contributes 30% to
Biocon’s consolidated revenues.
Syngene continued to invest in the latest technology and infrastructure to meet the demands of a growing
business. In Hyderabad Syngene commissioned the first phase of new R&D Centre, comprising 50,000 sq.
ft. of state-of-the-art laboratory space housing a team of up to 150 multidisciplinary discovery research
scientists. The Company’s first operational research Centre outside Bengaluru has the potential to become
a second Centre of excellence for Syngene’s Discovery Services. When fully commissioned, it will cover a
total of 94,000 sq. ft. and house around 270 scientists.
In Mangaluru, the construction of Active Pharmaceutical Ingredient (API) manufacturing facility in
Mangaluru is complete and is going through the process of qualification and validation. It is currently in
preparation to commence full-scale commercial operations towards the end of FY21.

During the year, Syngene cleared two US FDA inspections successfully; Received approval from Russia’s
Ministry of Health for meeting current Good Manufacturing Practice (cGMP) standards; Received Good
Laboratory Practice (GLP) certification for viral testing facility from the National GLP Compliance 11
Monitoring Authority — making it India’s first and only GLP-certified viral clearance study service provider.

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Strong Financials
Biocon’s revenue has grown significantly from Rs. 3,460 Crore in FY16 to Rs. 6,529 Crore in FY20 at a CAGR
of 17.2% on the back of Increasing uptake of Biosimilars, Research Services and increasing sales of Generic
Formulation in US. What lies ahead for the company is the bigger pie of revenue share, company expects
its Biologics division’s revenue to increase from Rs. 1,951 crore to reach Rs. 7,000-7,500 crore (~ USD $1
Billion) by FY22 on the back of US FDA commercialization of Insulin Glargine (approved in US),
Pegfilgrastim, Trastuzumab and other biosimilars already present in US, EU and MOW markets.
Biocon is in the expansion phase to cater to the increasing needs across the globe. Biocon has invested
over Rs. 2,200 crore in capex in last 5 years alone, while adding Rs. 39,000 crore in the market
capitalization.
Net R&D has just doubled in last 3 years from Rs. 216 Crore in FY18 to Rs. 439 Crore in FY20. Gross R&D
spend has remained in the range of 8-12% of the total expenses since last 5 years which validates the fact
that company aspires to become an innovation driven company.
EBITDA has grown from Rs. 1,029 Crore in FY16 to Rs. 1,803 Crore in FY20 at a CAGR of 12% with an
average EBITDA margin around 28%. Company’s PAT has grown from Rs. 550 crore to Rs. 748 crore in the
similar time frame with an average PAT margin of 13.4%.
While company has not paid dividends very generously, but the management has been able to increase
shareholder’s wealth enormously over the last 5 years. Company retained earnings of over Rs. 2,900 crore
in last 5 years, while increasing the market capitalization of the company by over Rs. 39,000 crore.

Biocon has increased shareholder’s wealth by over Rs. 13 for every rupee retained by the
company in last 5 years
Company’s commitment in terms of financial numbers is very promising, company aspired to become a
US $1 Billion revenue company by FY19, was able to successfully achieve the target. Now company aspires
it biosimilar division alone to generate the revenue of US $1 Billion by FY22 on the back of back-to-back
US FDA approvals of their biosimilars.
Company, despite investing more than Rs. 5,200 crore in last years, has comfortable debt position at 0.3x
of total equity. Company’s sound cash balance of Rs. 1,000 crore add to the strength of its balance sheet.
Biocon has generated strong ROEs at an average rate of 12.8% and ROCE at an average rate of 14.4% over
the last 5 years.

12

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Dedicated Management for Each Vertical

Though complex yet transparent company structure is followed by Biocon, where each business vertical
is headed by different individual, with its own dedicated management, to gain the expertise and benefits
of specialization through different bracket companies under same umbrella ‘Biocon Limited, India’. This
helps investors in identifying each vertical of business in detail.

The biggest benefit of having business spread across different verticals is mitigation of risk. When due to
unavoidable external forces, one side of business is down, the company has different business to come to
rescue and sail the company forward in toughest of the situations.

The company is vertically integrated which gives cost benefit and economies of scale to the company.
Company is into research services, CRAMS, branded formulations, and API, also engaged in Novel
Innovator drugs, hence, giving it a potential to take the most advantage of the opportunity set forth by
Indian pharmaceutical space in years to come. Company is set itself to transform from a pure enzyme
company to a full-fledged pharmaceutical giant.

13

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Aggressive Capex Plans

Biocon is a front runner in biopharmaceutical industry. The company adapts to the dynamic environment
rapidly and its capex plans remain aligned with its far-sighted objectives, vision, and mission.
Capital expenditure during FY20 stood at Rs. 974 crore. In Generics division, capex spends were largely
related to the construction of the new greenfield facility in Visakhapatnam for immunosuppressant
products. In Biosimilars, major spends were on account of the greenfield antibody facility in Bengaluru,
incremental drug substance and drug product capacities within existing plants and R&D facility in Chennai.

Management expects capex spend to be USD 200 million ~Rs. 1500 crore each in FY21 & FY22, split equally
between Small Molecules and the Biosimilars businesses. The capex will be funded through a combination
of contribution from internal accruals, debt raise as well as additional private equity investment in Biocon
Biologics.
Timeline of Capital expenditure

The greenfield antibody facility in Bengaluru entails an investment of ~USD 200 million with cash outflow
over four years starting FY18.

In FY19 Biocon also initiated upgradation of insulins drug substance facility in Bengaluru. In FY19, Biocon
incurred ~USD 100 million largely attributable towards these projects along with recurring maintenance
capex across all our verticals.

In FY20, Biocon planned to add incremental drug substance and drug product capacities across biosimilars
(antibodies, insulins, and proteins) as well as Small Molecules businesses. The company is also evaluating
construction of the second phase of our Malaysia Insulin facility which will require investment of ~USD
200 million.
Company has also initiated a greenfield project at Visakhapatnam, Andhra Pradesh with an investment of
Rs 600 Crore to secure our anticipated growth in fermentation-derived APIs, including company’s strong
portfolio of immunosuppressants. This expansion will enable Biocon deliver on their vertically integrated
strategy of developing and commercializing our own ANDAs and service the needs of our global API
customers. The company expects this facility to be operational over the next 3 years followed by
commercialization based on regulatory approvals in major markets.
Company did brownfield expansion in Chennai acquiring space for its R&D activities from Pfizer, it has
undertaken greenfield expansion in Mangalore for building up Small molecule facility as well.
Thus, it is well evident from the capex plans across all the business divisions that the company is well
prepared to address the global pharmaceutical need and grab the underlying opportunity with both
hands.
14

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Management Transparency and Accountability are key to Biocon’s success

To value a business dictated by R&D involves a lot of uncertainty. Management accountability and
transparency becomes the very key to understand the growth prospects. Biocon’s Management scores
full marks for transparency and accountability. Company’s management is always committed to high
standards of Corporate Governance and has in place appropriate structures and reporting systems.

Biocon's strong brand equity, commitment to address unmet patient needs, the steadfast pursuit of
affordable innovation and a keen sense of responsibility towards the society and the environment are
reflected in the awards and accolades conferred upon the Company.

A recent example of transparency and adherence towards highest corporate governance standards has
been the termination of its 13-year-old JV with UAE based Neopharma. The company said that the joint
venture partner came under investigation for governance issues which is likely to have a reputational
impact on the JV. Subsequently, Biocon has decided to wind up the JV entity.

Strategic alliances: A big positive

Biocon have had numerous Strategic alliances with companies across the globe. Biocon’s partnership with
Mylan is long standing from 2009 and expanded its scope of partnership in 2013 for biosimilars launch of
11 products. As Biocon’s success become well evident to the world, in 2018, Sandoz, the Novartis Biologics
division announced its partnership with Biocon for 2026 Biosimilars Second wave wherein Biocon is a
partner in Profit sharing as well. Biocon have had partnerships with Abraxis, Vaccinex, Optimer, IATRICa
and Amylin in the past.
Biocon currently holds 13.5% equity stake in Equillium (Nasdaq: EQ) and working alongside to start global
trial of Itolizumab to treat moderate to serious patients of Corona Virus after the company received
approval from the Indian regulator for its use.
Biocon in 2010 in partnership with Axicorp established its presence in Germany. Biocon launched its first
biosimilar in Developed market japan in 2016 partnering with FUJIFILM Kyowa Kirin Biologics, Biocon has
a partner in Mexico Pisa Labs to commercialise in US and many others.
Biocon has developed a strategy wherein it commercialises its product by partnering with a local company
to take advantage of Local company’s marketing hold in their country and medical institution lobbying.
On other hand, Biocon’s research services Syngene has long standing partnerships with Bristol Myers
Squibb, Amgen, Abbott Nutrition, Baxter, Glaxo Smith Kline, Herbal life nutrition and many more pharma
giants, that shows Biocon’s representation at a global level.

15

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Mission 10 cents
Diabetes: A Global Pandemic

16

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Unlocking universal access to affordable insulin

In the run-up to the 100th anniversary of the discovery of insulin as a treatment for diabetes, Biocon has
embarked on a mission to unlock universal access to high-quality insulin guided by the conviction that
such an essential therapy needs to be accessible to patients globally.

More than a 100 million people require insulin therapy for the management of their diabetes –– the ‘silent
pandemic’ that currently affects 475 million people worldwide.

At a time when the world is seeking viable, long-term solutions to improve insulin access and affordability,
Biocon’s ‘Mission 10 cents’ is offering recombinant human Insulin (rh-Insulin) at less than 10 U.S. cents /
day for direct procurement by governments in LMICs, where millions of people cannot access insulin as it
is unaffordable.

This initiative coincides with WHO’s first-ever insulin pre-qualification program. Biocon Biologics is talking
to several governments for ways to disintermediate the supply of insulin.

Biocon Biologics reaffirmed its commitment to enable universal access to high quality insulin by offering
recombinant human Insulin (rh-Insulin) at less than 10 US cents/day ~ less than Rs. 10/day for direct
procurement by governments in low and middle-income countries (LMICs). The announcement was made
at a UNAIDS Health Innovation Exchange event held on the sidelines of the 74th session of the UN General
Assembly in New York. UNAIDS welcomed the announcement by Biocon.

The recent approval of our Insulin Glargine by U.S. FDA will help the company to serve insulin patients in
U.S.

How this mission can contribute in growth numbers and P&L

It is a side event at the UN General Assembly. It has offered to the world to LMICs for access to affordable
insulin. And this is an offer that is directed towards governmental purchases, which also circumvents all
the middlemen and all supply chains in between. So that is one thing. And the other thing, it is an offer
made from an organization that is based on a very profitable and a very good cost structure, vertically
integrated from end-to-end production. Biocon has its production in Malaysia and in India which makes
them also to be a good cost player on this side. And as they are making this offer to governments, this is
also about volume and economies of scale which in the end makes it profitable.

17

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

RISKS
R&D does not always capitalize
The research and development (R&D) process is a critical stage in drug development in the pharmaceutical
(Pharma) industry. The process starts after an initial candidate drug is identified and encompasses the
rigorous research tests that determine its therapeutic suitability.

Now when it comes to biologics, it is entirely a different ball game. As a result, the cost of developing a
biosimilar for global markets has been estimated at US$75-$250 million. This is in stark contrast to the
estimated US$2-3 million required to develop the much simpler, traditional non-biologic generics (Source:
Bourgoin and Nuskey, ‘An Outlook on US Biosimilar Competition’, April 2013)

On the other hand, Biosimilars molecules are far more complex from generics. Thus, replicating the
biosimilar drug with the innovator drug is very difficult and has a lot of cost involved. So, it may happen
that spending billions on a molecule’s R&D which may not clear trials at later stages or not able to prove
Bioequivalence. Hence, it can dent the company drastically.

For instance, Biocon has been trying to complete the trials of its biologic drug Tregopil which is 18
indigenously made novel molecule since last 10 years but missing certain criteria. Sometimes, a company
fails to meet primary end point or secondary end point or is not able to prove safety and efficacy of

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

biosimilars with the innovator drug. Hence, R&D holds an integral part in cost structure and should be
taken care of.

USFDA is a big trigger!

By most estimates, the US is about a decade behind the EU in terms of adopting biosimilars, with 90% of
all global biosimilar sales occurring in EU countries, even though 60% of all biologic drug sales occur in the
US.
In the US, biosimilars face a complex web of barriers: red tape, dubious litigation, anti- competitive
contracting, fearmongering, and patient and practitioner misunderstanding – while in the rest of the
world they are surging forward with great success, specially Europe.
One of those barriers is legal challenges, according to Lovisa Gustafsson, an assistant vice president at the
Commonwealth Fund, a healthcare foundation. “The drug companies apply for new patents over and over
again,” she said. “It leads to very long periods of exclusivity that are essentially monopolies during which
the biosimilars can’t come to market.”

Manufacturers also disseminate misleading information about biosimilars that sometimes constitutes
fearmongering. Last year Pfizer petitioned the FDA to step in when a rival’s website stated that ‘the FDA
requires a biosimilar to be highly similar but not identical to the [reference product]’, without qualifying
that they must also have no ‘clinically meaningful’ differences from the branded drug. Pfizer also cited a
Janssen brochure that allegedly implied the biosimilar Inflectra is not interchangeable with Remicade and
may pose a safety risk. Additionally, a YouTube video sponsored by Amgen questioned the safety of
biosimilars.
In the US, manufacturers need to consider patent litigation challenges and their potential effects. What is
often referred to as “the patent dance” can delay biosimilar companies in moving forward with critical
steps to support future product uptake, such as negotiating with major payers to get ahead of
exclusionary formulary decisions. Litigation barriers can also allow other biosimilar manufacturers, that
would have otherwise been third or fourth to market, to get ahead of the presumptive biosimilar market
leader and launch their products first, which again impacts a company’s strategy.
In July 2018, the FDA published its Biosimilars Action Plan, acknowledging the lack of competition in the
biologics space recognizing the numerous barriers to the development and utilization of biosimilars, the
FDA outlined 4 key goals in tackling this issue, including streamlining the approval process, improving
regulatory clarity, increasing educational efforts to improve understanding among stakeholders, and
collaborating with the Federal Trade Commission to address anticompetitive behaviors.
The FDA has approved 28 biosimilars so far. The first, approved in 2015, was Sandoz’s Zarxio (filgrastim-
19
sndz), a biosimilar of Amgen’s cancer drug Neupogen (filgrastim). Zarxio came on the market just six
months after approval, but most other biosimilars have not had such a quick journey. Seventeen of the

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

28 approved biosimilars were on the market at the beginning of July, so the gap is narrowing but still
there.

Acceptance of Biosimilars
“74% of physicians who responded reported ‘physician confidence’ as one of the biggest barriers to
widespread adoption of biosimilars”
The law of Interchangeability does not always apply to biosimilars; thus, it slows down the physician
acceptance.
Many of the blockbuster biologics expected to lose market exclusivity by 2020 are treatments for severe
diseases such as rheumatoid arthritis and cancer, conditions that physicians will not want to risk treating
with less effective drugs. In general, for patients whose diseases are already well controlled with reference
biologics, physicians might continue prescribing these treatments. And with mandatory substitution
unlikely to become widespread in the near term, physicians will not be compelled to switch these patients
to cheaper options, yet cost is a major consideration for several people, which makes us.

Originator Company’s Strategies to Slow Market Growth of Biosimilars

Although to date the FDA has approved 25 biosimilars, only a handful have made it to market.
Biologics originators have been deploying a host of defensive strategies in their fight against biosimilars.
One is to get the patent on a biologic drug extended (in one instance, by as many as 15 years); another is
to insist that the drug’s manufacturing requirements and clinical data qualify as trade secrets, which—if
the FDA agrees—protects any biologic approved before the passage of the BPCIA from competition of
biosimilars. Even the launch of the recently approved Zarxio biosimilar has been delayed in the US by
ongoing patent litigation with the originator.

Some originators have reduced or cut off the supply of their biologics for use in clinical trials by companies
developing competing biosimilars. Others have launched trials of a next-generation biologic drug at the
same time that the maker of a biosimilar has begun recruiting patients for clinical trials of its product (this
can create serious problems in areas such as oncology, where the competition for clinical-trial subjects is
already high). Originators have also proactively cut the price of a reference biologic before the launch of
a competing biosimilar. And others have launched an improved version of the original biologic ahead of a
biosimilar rollout and actively migrated patients to the improved version.

20

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

COVID-19 Impact
A potential opportunity for the Indian pharmaceutical industry
Biocon reinforced its reputation of resilience and reliability by continuing to supply life-saving therapies
worldwide despite lockdowns and other production and supply chain disruptions due to COVID-19.

Meeting business commitments amid unprecedented challenges did not deter the company from
contributing to global efforts to tackle COVID-19 through innovative science. Biocon is repurposing its
psoriasis biologic drug ALZUMAb™ (Itolizumab), an anti-CD-6 IgG1 monoclonal antibody, to treat COVID-
19.

Earlier during the year, Biocon received the Drugs Controller General of India’s approval to conduct a
clinical trial in moderate to severe patients with COVID-19 complications. This trial at multiple hospitals
in Mumbai and Delhi and the company is seeing an encouraging response from patients being treated
with Itolizumab.

Biocon's partner Equillium plans Itolizumab's global clinical trial for COVID-19. Biocon has out-licensed
Itolizumab to US-based biotech firm Equillium in 2017 for development in the US and Canada. Equillium
has been awarded ‘fast track’ and ‘orphan drug’ designations for the molecule in both prevention and
treatment of graft-versus-host disease by the USFDA.

Biocon’s research services subsidiary Syngene is collaborating on research projects related to vaccine
development, which could represent a longer-term solution for fighting the coronavirus pandemic.

The COVID-19 pandemic has illustrated the need to have robust supply chains in this connected world of
global commerce. Any impact on inbound logistics, especially for raw materials and outbound logistics for
customer supplies can have a direct impact on the operations of the Company. This can be aggravated
further by reduced availability of raw materials, whether sourced locally, nationally or imported from
overseas. While the Company maintains a few months of critical raw material inventory, and supply chains
have fast normalized in the first quarter of FY21, any new and longer duration disruption on the supply
chain can affect manufacturing operations and adversely impact our financial performance.

The novel coronavirus outbreak has demonstrated that if humanity is to survive as a species, it is
imperative that there is equitable access to all essential health products and technologies without
distinction of race, religion, political belief and economic or social condition. Universal access to quality
healthcare for all is non-negotiable.

21

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Story So Far

22

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Financial Summary
Particulars (In Rs. Crs) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY25E
P&L Statement
Total Revenue 3,460 4,079 4,336 5,659 6,529 8,723 12,506 14,435 16,700 19,362

Expenses:
Cost of raw materials and packing materials consumed 1,255 1,322 1,445 1,980 2,168 2,896 4,152 4,793 5,545 6,429
Employee benefits expense 610 747 931 1,165 1,459 1,751 2,510 2,897 3,352 3,886
Other expenses 811 846 902 1,329 1,599 1,971 2,825 3,261 3,773 4,374
Total Expenses 3,023 3,374 3,922 4,909 5,727 7,418 10,435 12,015 13,843 15,970

Gross R&D 427 402 380 480 527 - - - - -

Net R&D 274 267 216 290 439 - - - - -

EBITDA 1,029 1,153 1,057 1,734 1,803 2,381 3,414 3,940 4,558 5,285
EBITDA margins 29.7% 28.3% 24.4% 30.6% 27.6% 27.3% 27.3% 27.3% 27.3% 27.3%

Profit before tax 751 850 610 1,215 1,186 1,673 2,598 3,027 3,560 4,208

Profit after tax 550 612 372 906 748 1,081 1,679 1,957 2,301 2,719
PAT margins 15.9% 15.0% 8.6% 16.0% 11.5% 12.4% 13.4% 13.6% 13.8% 14.0%

EPS 27.5 30.6 6.2 15.1 6.2 9.0 14.0 16.3 19.2 22.7
DPS 5.0 1.0 1.0 0.5 - - - 1.6 1.9 4.5

Balance Sheet
Equity share capital (FV=Rs.5) 100 100 300 300 600 600 600 600 600 600
Other equity 3,934 4,738 4,881 5,798 6,106 7,187 8,866 10,627 12,697 14,873
Total equity 4,300 5,214 5,649 6,707 7,383 7,787 9,466 11,227 13,297 15,473

Non-current liabilities
Financial liabilities
Borrowings 2,072 2,108 1,790 1,542 1,222 1,222 1,222 1,222 1,222 1,222
Other non-current liabilities 371 352 342 805 949 949 949 949 949 949
Total non-current liabilities 2,493 2,502 2,200 2,448 3,053 3,053 3,053 3,053 3,053 3,053

Current liabilities
Financial liabilities
Borrowings 395 97 130 261 668 668 668 668 668 668
Trade payables 610 740 1,005 1,198 1,325 1,719 2,465 2,845 3,291 3,816
Other current liabilities 316 366 308 369 498 709 1,017 1,173 1,357 1,574
Total current liabilities 1,666 1,678 2,141 3,039 4,008 4,614 5,667 6,203 6,834 7,575
Total liabilities 8,458 9,394 9,990 12,193 14,444 15,453 18,185 20,483 23,184 26,100

Non-current assets
Gross Block 3,302 5,321 5,779 6,709 8,203 9,703 11,203 12,403 13,603 14,603
Property, plant and equipment 1,681 3,553 3,630 4,253 5,393 5,756 6,507 6,861 7,128 7,117
Capital work-in-progress 2,060 533 779 1,287 1,577 1,756 2,518 2,907 3,363 3,899
Total non-current assets 4,487 5,347 5,841 7,370 9,119 9,662 11,174 11,916 12,640 13,165

Current assets
Inventories 542 635 723 1,032 1,436 1,512 2,168 2,502 2,894 3,356
Trade receivables 715 883 1,064 1,292 1,224 1,955 2,803 3,235 3,743 4,340
Total current assets 3,971 4,048 4,149 4,823 5,325 5,974 7,193 8,749 10,726 13,118
Total assets 8,458 9,394 9,990 12,192 14,444 15,635 18,367 20,665 23,366 26,283

23

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Cash Flow Statement FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY25E
PAT 550 612 372 906 748 1,081 1,679 1,957 2,301 2,719
Cash Flow from Operations 371 640 662 1,155 1,283 1,378 1,085 2,118 2,429 2,785

Cash Flow from Investing -1,142 -499 -684 -714 -1,559 -1,500 -1,500 -1,200 -1,200 -1,000
Purchase of PPE -319 -2,211 -463 -932 -1,531 -1,500 -1,500 -1,200 -1,200 -1,000
Sale of PPE 9 192 5 2 37 - - - - -

Cash Flow from Financing 1,067 -178 -240 -242 388 - - -196 -230 -544
Dividends Paid 220 -80 -79 -70 - - -196 -230 -544

Net Change in C&CE 296 -37 -262 199 112 -122 -415 722 999 1,241
Opening C&CE 458 761 710 501 730 910 788 374 1,096 2,094
Closing C&CE 761 710 501 730 910 788 374 1,096 2,094 3,335

Particulars (In Rs. Crs) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY25E
Ratios
Sales Growth 17.9% 6.3% 30.5% 15.4% 33.6% 43.4% 15.4% 15.7% 15.9%
EBITDA Growth 12.0% -8.4% 64.1% 4.0% 32.1% 43.4% 15.4% 15.7% 15.9%
PAT Growth 11.2% -39.2% 143.5% -17.4% 44.5% 55.3% 16.5% 17.6% 18.2%
EBITDA Margin 29.7% 28.3% 24.4% 30.6% 27.6% 27.3% 27.3% 27.3% 27.3% 27.3%
PAT Margins 15.9% 15.0% 8.6% 16.0% 11.5% 12.4% 13.4% 13.6% 13.8% 14.0%
ROE (%) 15.1% 13.8% 7.4% 16.1% 11.7% 14.9% 19.5% 18.9% 18.8% 18.9%
ROCE (%) 15.4% 13.4% 9.7% 17.6% 16.1% 20.5% 27.1% 26.7% 26.9% 27.4%
Dividend Payout Ratio 18.2% 3.3% 16.1% 3.3% 0.0% 0.0% 0.0% 10.0% 10.0% 20.0%
Debtors Collection Days 77.1 82.2 94 85.5 70.1
Inventory Holding Days 92.7 99.8 103.7 116.7 143.5
Creditors Holding Days 104.2 116.2 144.2 135.6 132.5
Working Capital Cycle Days 65.6 65.8 53.5 66.6 81.2
Debt to Equity (times) 0.6 0.4 0.3 0.3 0.3
Current Ratio (times) 2.4 2.4 1.9 1.6 1.3
CFO/EBITDA 36% 56% 63% 67% 71%
CWIP/Gross Block 62% 10% 13% 19% 19%
Promoter Holding 61% 61% 61% 61% 61%

Segmental Performace FY16 FY17 FY18 FY19 FY20

Revenue
Small Molecules 1,440 1,631 1,508 1,773 2,094
Biologics 530 702 770 1,517 1,951
Branded Formulations 441 549 612 656 536
Research Services 1,107 1,193 1,423 1,826 2,012

PBIT
Small Molecules 251 414 284 325 410
Biologics 77 140 -12 398 482
Branded Formulations 80 46 43 62 19
Research Services 281 347 373 416 446

Capital Employed
Small Molecules 1,193 1,257 1,336 1,510 1,794
Biologics 2,323 2,586 2,833 3,545 4,574
Branded Formulations 110 74 106 76 68
Research Services 1,053 1,413 1,720 1,968 2,176
NOTE: SMALL MOLECULES IS RENAMED AS GENERIC; BIOLOGICS SEGMENT IS DIVIDED INTO TWO SEGMENTS: BIOSIMILARS AND NOVEL
BIOLOGICS AND BRANDED FORMULATIONS IS MERGED IN THE NEW BIOSIMILARS SEGMENT.

DuPont Analysis FY16 FY17 FY18 FY19 FY20

Tax Burden (NI/EBT) 79% 79% 70% 81% 70%
Interest Burden (EBT/EBIT) 96% 97% 90% 94% 94%
EBIT Margin (EBIT/Sales) 21% 20% 14% 22% 18%
Total Asset Turnover Ratio (Sales/Total Assets) 46% 44% 43% 50% 48% 24
Equity Multiplier (Total Assets/ Average Equity) 2.03 2.01 1.93 1.97 2.08
Return on Equity 15.1% 13.8% 7.4% 16.1% 11.7%

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Story in Charts

CHART 1 CHART 2

CHART 3 CHART 4

CHART 5 CHART 6

25

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

CHART 7

CHART 8 CHART 9

CHART 10 CHART 11
26

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Price Target & Valuation Assumptions

The value of the stock is the future cash flow to shareholders discounted at the expected rate of return. Future
cash flow is a function of return on capital and growth. Biocon’s business model is as such it might invest a lot in
R&D’s showing lower return on capital in the short duration but can earn substantiated returns once the R&D is
capitalised in the form of commercialized drugs.

Valuation Methodology

1. Discounted Cash Flow

We value the stock at Rs 496, based on a 2 stage DCF model. We use a cost of equity of 9.9%, assuming a beta of
0.73, a risk-free rate of 5.85% and a market risk premium of 6.00%. We continue to assume a terminal growth
rate of 6%.
Particulars (in Rs. Crore)
Risk free rate 5.9%
Beta 0.73
ERP 6.0%
Cost of equity 10.2%
WACC 9.9%
Terminal Growth rate 6.0%

Debt 1,890
Cash & CE 999

Total PV 58,844
Total no. of shares 118.6
Intrinsic Value 496
Margin of Safety 25%
Safe Intrinsic Value 397

2. Sum of the Parts

Based on the Sum of the Parts (SOTP), value for Biocon comes out to be Rs. 467, using a 20% holding company
discount.
SYNGENE INTERNATIONAL Biocon Biologics India Limited,
Particulars (in Rs. Crore) Biocon Pharma Inc, USA Biocon FZ LLC, UAE Biocon Standalone
LIMITED (XNSE:SYNGENE) India
PAT FY20 ₹ 412 ₹ 288 ₹ 28 ₹ 7 ₹ 440
PE Value 45 91 68 68 68
Market Cap ₹ 18,713 ₹ 26,250 ₹ 1,884 ₹ 442 ₹ 29,929
Biocon's Holding % 70.24% 95.25% 100% 100% 100%
Biocon's Share ₹ 13,144 ₹ 25,003 ₹ 1,884 ₹ 442 ₹ 29,929

Total ₹ 70,402
Holding Company Discount 20%
Discount Market Value ₹ 56,322
Add: Cash ₹ 999
Sub: Debt ₹ 1,890
Outstanding Shares 118.64
Implied Value Per share ₹ 467
27

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in

 Apex Capital
Invest Wise

Disclaimer
This document has been prepared by Apex Capital. Affiliates of Apex Capital may have issued other reports that are inconsistent with and reach different
conclusion from the information presented in this report. The views and opinions expressed in this document may or may not match or may be contrary with
the views, estimates, rating, and target price of the Affiliates research report.

The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, trans mitted
to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent.

This report and information herein are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy
or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a
representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities disc ussed and opinions expressed in
this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions
and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient.

Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities
of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of
such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures,
options, and other derivatives as well as non-investment grade securities - involve substantial risk and are not suitable for all investors.

Apex Capital has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made
as to the accuracy, completeness or fairness of the information and opinions contained in this document.

The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement
of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications
and alternations to this statement as may be required from time to time without any prior approval.

Apex Capital, its affiliates, their directors, and the employees may from time to time, effect or have affected an own account transaction in, or deal as principal
or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit
investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct, and independent
of each other. The recipient should take this into account before interpreting the document.

This report has been prepared based on information that is already available in publicly accessible media or developed through analysis of Apex Capital. The
views expressed are those of the analyst and the Company may or may not subscribe to all the views expressed therein.

This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other
person or published, copied, in whole or in part, for any purpose. Neither this document nor any copy of it may be taken or transmitted into the United State
(to U.S. Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident
thereof.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country
or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Apex Capital to any
registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain
category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or i ndirect, incidental, special or
consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

Ratings Explained

Undervalued: Upside Potential from CMP to Intrinsic Value is 15% or more

Fairly Valued: Upside Potential from CMP to Intrinsic Value is less than 15%

Over Valued: CMP > Intrinsic Value

Copyright in this document vests exclusively with Apex Capital.

28

Contact us at +91-8451825819 | Email us at ApexCapitalIndia@gmail.com | Visit us at www.apexcapital.in