| Biocon Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities 1The common independent director on the boards of CRISIL and Biocon Ltd did not participate in the rating committee meeting and the rating process for these instruments |
| Detailed Rationale |
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CRISIL has reaffirmed its ratings on the bank facilities and short term debt of Biocon Limited (Biocon) at 'CRISIL AA+/Stable/CRISIL A1+'. The ratings continue to reflect an established position in the biopharmaceutical (biopharma) segment, diversified revenue profile and strong pipeline of biosimilar products. The ratings also factor in a strong financial risk profile marked by low gearing and healthy debt protection metrics. These strengths are partially offset by uncertainty in payoffs from a high research and development (R&D) driven model for development and commercialisation of biosimilars, generic insulin analogs, and novel molecules. The company is also exposed to regulatory uncertainties and intense competition. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Biocon and its twelve subsidiaries (including Syngene) as all these companies, together referred to herein as Biocon, primarily operate in the biopharma sector, and are under a common management. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established position in the biopharma segment Biocon is the leading biopharma company of India with a track record of 40 years. In the biopharma segment, Biocon primarily has a presence in India and semi-regulated economies. In the domestic formulations market, it is a biologics-focused specialty products company, mainly in chronic therapy areas. The domestic business has multiple divisions such as metabolics, oncology, nephrology, immunotherapy, and comprehensive care. It has strong brands such as InsugenÃ''Ã'® (rh-insulin), BASALOG' (insulin glargine), BIOMab-EFGR (nimotuzumab), BLISTO (glimepiride + metformin), CANMAb (trastuzumab), KRABEVA (bevacizumab), Evertor (everolimus), TACROGRAF (tacrolimus), and ALZUMAb (itolizumab) across its biosimilar and novel biologic portfolio. Biocon is also one of the leading players in insulin in Asia, with its global capacities making it one of the leading insulins producer globally. Biocon also is a leading supplier of complex, small molecules APIs across cardiovascular, anti-obesity and immune-suppressants therapeutic areas. * Strong and diversified revenue streams Revenue is diversified across biopharma (small molecules, biologics, and branded formulations) and contract research, which accounted for 67% and 33% of revenue, respectively, in fiscal 2018. Small molecules (35% of revenues in fiscal 2018), the flagship segment, witnessed degrowth in fiscal 2018 because of pricing pressure in the US. However, the segment has generated steady cash flows over the years and the growth is expected to recover over the medium term backed by product registrations in new markets. In small molecules, Biocon has consolidated its position by leveraging on its inherent strengths in fermentation technology and complex chemistry. Similarly, the company is an established domestic player through its branded formulations segment (14% of revenues in fiscal 2018). Biocon's long term growth is expected to be led by its biosimilar and novel biologics segment, in both semi-regulated and regulated markets. While these emerging segments continue to require high investments in the form of R&D and capex, it is supported with steady cash flows from its established segments of small molecules and branded formulations. Additionally, Syngene provides further revenue diversity with its healthy growth and profitability. For fiscal 2018, Syngene accounted for 33% of revenue and over 50% of operating profits of consolidated Biocon. Syngene's public listing in fiscal 2016 boosted Biocon's cash flow and provided flexibility for R&D and investments in capex for biosimilar and biologics. * Strong pipeline of biosimilar products with three in an advanced stage of approvals in regulated markets Biocon has strong R&D capabilities, and has several biosimilars and novel biologic products under development across diabetes, oncology, and autoimmune therapeutic segments. In partnership with Mylan, Biocon's three biosimilar assets are in an advanced stage of regulatory approvals and/or commercial launch in developed markets. The commercial launch and scaling up of revenue from the key biosimilar assets (trastuzumab, pegfilgrastin and insulin glargine) in the US and Europe will be a key rating sensitivity factor. * Strong financial risk profile The gearing was conservative at 0.4 time as on March 31, 2018, and the interest coverage and net cash accrual to total debt ratios of 17 times and 0.30 time, respectively, in fiscal 2018. Financial flexibility is high because of unencumbered cash and marketable securities of about Rs 1,915 crore as on March 31, 2018 (including liquid surplus of about Rs 1,124 crore in Syngene). Excluding capex under Syngene, there are large on-going capex plans of about Rs 1300 crore (USD 200 million) for further increasing capacities for monoclonal antibodies. The capex is spread across 3-4 years in two phases, beginning fiscal 2016. Given the net cash accrual of Rs 700-800 crore per fiscal, healthy liquidity, and part funding of the large capex by Mylan, the strong financial risk profile is likely to be maintained over the medium term. Weaknesses * Uncertainty in payoffs from a high R&D driven model in biosimilars and novel biologic segment, especially for regulated markets The company will continue to spend extensively on R&D for developing new molecules and biosimilars, particularly for the US and Europe markets. It remains exposed to uncertainty of timing and the extent of returns on investments on new molecules given the inherent nature of the drug discovery model. Gross R&D and net R&D (net of capitalisation) was 14% and 8% of operating revenue excluding Syngene, respectively for fiscal 2018 (15% and 10%, respectively for the previous fiscal). The R&D expenditure will remain high over the medium term, driven by expenses on clinical trials and other R&D activities. The uncertainty in revenue visibility and predictability over the return on the R&D exposes the company to investment risk. However, the company has achieved critical milestones in fiscal 2018 such as approval for trastuzumab from US Food and Drug Administration (FDA) and insulin glargine from European Commission and Therapeutic Goods Administration, Australia. The extent of ramp up in cash flows on commercial launch, will be a monitorable. * Exposure to regulatory uncertainties and intense competition The regulatory risks are manifested by increasing scrutiny and inspections by the regulatory authorities including the US FDA, European Medical Agency and others in Asian and Latin American markets. The company is in the process of complying with corrective and preventive action (CAPA) plan on the observations on the company's facility raised by ANSM (French National Agency for Medicines and Health Products Safety) and by the US FDA. The company is also exposed to intense competition in the regulated markets, which is marked by aggressive defence tactics by innovator companies through introduction of authorised generics, and the presence of a number of cost-competitive Indian players. Consequently, Biocon's small molecule segment has witnessed pricing pressures ' the segment degrew by 8% in fiscal 2018. In branded formulation segment, additions to lists under Drug Price Control Order also impacts product pricing and hence the profitability of the India branded formulations business. |
| Outlook: Stable |
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CRISIL believes Biocon will maintain its strong financial risk profile, over the medium term supported by large cash accrual and robust liquidity. |
| About the Company |
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Biocon, founded in 1978, is India's leading biopharma company. It is fully integrated and delivers biopharma solutions, ranging from discovery to development and commercialisation. It has diversified revenue streams including small molecule APIs and formulations, biologics (novel and follow-on), and branded formulations, with a presence in the domestic as well as global markets. It also offers integrated research services through Syngene. |
| Key Financial Indicators | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||
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