Market Reacts Negatively To Biocon's Weaker Results, Exit Of Biologics' MD

The stock market on Friday reacted negatively to biopharmaceutical major Biocon Ltd's weak third quarter results amd the sudden exit of its biologics' Managing Director Christiane Hamacher over "professional differences" with the chairperson.

From the previous close of Rs 441.95 per share, Biocon Ltd opened four per cent lower at Rs 424 apiece on Friday before taking a 9 per cent hit at Rs 402.05 per share by noon.

Analysts believe the market reacted negatively to the news due to the imminent miss on the company's $1 billion guidance on its biosimilars business by FY 2021-22, especially now with Hamacher's exit.

Biocon Ltd has taken a nearly 19 per cent hit on a year-on-year (YoY) basis on its consolidated net profit at Rs 186.6 crore for Q3FY21, owing to a dip in its generics business and headwinds across operational, regulatory and commercial functions.

Further, the company has stated that pursuant to a mutual agreement, Hamacher has stepped down as the managing director of Biocon's subsidiary Biocon Biologics Ltd. (BBL) and also ceased to be a member of the Board effective January 20, 2021. "This decision was taken due to professional differences with the chairperson on strategic priorities and vision for the company," it stated, while adding that Hamacher's last working day as CEO of BBL would be February 28, 2021.

Hamacher is succeeded by BBL's board member Arun Chandavarkar who takes over as managing director, effective January 21, 2021, for a period of up to two years, with Shaw being the executive chairperson of BBL from January 21, 2021 until March 31, 2022.

As against the $1 billion revenue target for biosimilars business by FY22, analysts peg the same at a current base of $350-400 million, which means the company would have to do more than two and a half times in the next one year.

"This is not possible given that biosimilars is such a huge scale up, specifically when you are not even in the branded products. Moreover, Hamacher's exit with Biocon very clearly stating 'professional differences' cannot be for a minor thing at such a senior level. While Biocon's executive chairperson Kiran Mazumdar-Shaw would do everything in her means to achieve the target given for biosimilars, the person who has to implement this will actually know what kind of targets are possible in the realistic world," said a pharma analyst on condition of anonymity.

According to Shrikant Akolkar, pharma analyst at Ashika Stockbroking, the company has not only underperformed on all operating parameters, but is also facing operational troubles due to the pandemic.

The revenues of the company's research services grew by 13 per cent in Q3FY21, while the biosimilar business segment rose by 11 per cent on a YoY basis. However, its generics business reported a three per cent dip in the third quarter at Rs 561 crore as against Rs 576 crore in the corresponding period last year.

"2020 has been one of the most challenging years for the world with an unprecedented pandemic impact on the global economy. We continue to face headwinds across operational, regulatory and commercial functions which have been deterrents to our planned market expansion. However, we expect normalization by next fiscal," said Biocon's Executive Chairperson Kiran Mazumdar-Shaw.

The subdued performance by Biocon's generics business was a result of moderating demand following a period of advance buying by customers in the first half of the fiscal, over apprehensions of supply disruptions in the wake of the Covid-19 pandemic, said the company's Chief Executive Officer and Managing Director Siddharth Mittal.

However, Akolkar believes that even the biosimilar segment's growth is weaker than expected. "Bevacizumab is delayed, which may mean few more setbacks in biosimilars. While the inherent business remains strong, the $1 billion biologics business guidance is proving difficult to digest. Also, Hamacher's decision to step down due to professional differences has been taken negatively by the market," Akolkar added.

Going forward, cost structures may also continue to affect the biosimilars' business for Biocon, analysts said.

"Even when there are 5-10 companies in a product in biologics, it becomes very difficult for a company to market and as a result 10-20 per cent price erosion is pretty normal. When that happens you need a salesforce and you need to incentivise them very heavily in order to promote your product. So we don't see the cost structure coming down drastically. Although there will be some corners that Biocon will cut, it would not be as drastic," said another analyst.