| Biocon Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities of Biocon Limited (Biocon).
The ratings continue to reflect the company’s established position in the biopharmaceutical (biopharma) segment, diversified revenue and healthy pipeline of biosimilar products. The ratings also factor in its strong financial risk profile driven by low gearing and healthy debt protection metrics. These strengths are partially offset by uncertainty regarding payoffs in the research and development (R&D)-driven model for development and commercialisation of biosimilars and novel molecules. The company is also susceptible to regulatory uncertainties and intense competition.
Biocon has a strong presence in the biopharma sector with diversified revenue streams spanning generics (includes formulations and active pharmaceutical ingredients (APIs)), biosimilars (including branded formulations), and research services. Operating income rose 13% to Rs 7,106 crore in fiscal 2021, led by healthy growth in the biosimilars and research divisions even as growth was lower in the generics segment due to the impact of Covid-19. Revenue growth is expected to remain healthy over the medium term, backed by diversified revenue streams, strong growth in research services (under Syngene International Ltd [Syngene], ‘CRISIL AA+/Stable/CRISIL A1+’) and launch of new biosimilars in the regulated and semi-regulated markets (under Biocon Biologics Ltd [BBL], ‘CRISIL AA+/Stable’). Biocon’s operating margin declined to 23.4% in fiscal 2021 owing to the adverse impact of Covid-19 pandemic delaying new product launches, and continued investment in research and development (R&D). Improvement and sustainability of the operating margin over 25% will be a monitorable, given the large R&D expenditure.
On September 16, 2021, BBL and Serum Institute Life Sciences Pvt Ltd (SILS), announced a strategic alliance as part of which BBL will offer around 15% stake to SILS at a post-money valuation of around USD 4.9 billion, for which it will get committed access to 100 million doses of vaccines per annum for 15 years. This alliance is subject to regulatory approval and will lead to expansion of product portfolio for BBL and incremental operating profits, if implemented. CRISIL Ratings expects this alliance to strengthen BBL’s business risk profile and product offerings over the medium term and will continue to monitor the developments in this regard.
The financial risk profile remains strong, backed by a robust capital structure, healthy debt protection metrics and ample liquidity. The gearing was healthy at 0.56 time as on March 31, 2021, and is expected below 0.50 time over the medium term. The company continues to undertake sizeable capital expenditure (capex) in the generics, biosimilars and research services segments, which will be funded through debt and internal accrual. Ramp-up of operations post the ongoing capex in the generics and research business segments, and successful launch of biosimilars backed by healthy product pipeline will remain the key monitorables. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Biocon and its subsidiaries as all the companies, collectively referred to herein as Biocon, primarily operate in the biopharma sector and are under a common management. The joint venture, Neo Biocon FZ-LLC, has been moderately consolidated. CRISIL Ratings has amortised goodwill on acquisition and intangibles (including products under development) over five years.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths
Biocon is the leading biopharma company in India with a track record of 40 years. In the biopharma segment, the company has presence primarily in India and semi-regulated economies. In the domestic formulations market, it is a biosimilars-focused specialty products company, mainly in chronic therapy areas. The domestic business has multiple divisions such as metabolics, oncology, nephrology, immunotherapy, and comprehensive care. Biocon has strong brands such as Insugen® (rh-insulin), BASALOG™ (insulin glargine), BIOMab-EFGR® (nimotuzumab), BLISTO® (glimepiride + metformin), CANMab (trastuzumab), KABEVA (bevacizumab), Evertor® (everolimus), TACROGRAF™ (tacrolimus), and ALZUMAb™ (itolizumab) across its biosimilar and novel biologic portfolio. It is among the leading players in insulin in Asia, with its global capacities making it a leading insulin producer globally. Biocon also is a leading supplier of complex, small molecule APIs across the cardiovascular, anti-obesity and immuno-suppressants therapeutic areas.
Revenue is diversified across generics (33% of revenue in fiscal 2021), biosimilars (39%), contract research (31%), including the inter segment revenue (-3%).
Generics segment grew at a modest 6% in fiscal 2021, on account of delay in getting regulatory approvals and consequent delay in new product launches due to travel restrictions amid the pandemic. Biocon has consolidated its position in this segment by leveraging its inherent strengths in fermentation technology and complex chemistry.
Biocon’s long-term growth potential is expected to be led by its biosimilar and novel biologics segments, in both semi-regulated and regulated markets. While these segments continue to require large investment for R&D and capex, the company is supported by steady cash flow from all its established business segments – generics, biosimilars and research services. As on June 30, 2021, the company had five approved biosimilar products in Europe and three in US in partnership with Viatris. Semglee® (biosimilar insulin glargine) was launched in the US in August 2020 and is Biocon’s third launch in that market after Fulphila® (biosimilar pegfilgrastin) and Ogivri® (biosimilar trastuzumab). Additionally, Biocon received European Commission approval for Abevmy® (biosimilar bevacizumab) and Kixelle® (biosimilar insulin aspart) in the second half of fiscal 2021 which will be launched this fiscal. Further, US FDA intimation is awaited for site inspection of facilities for biosimilar bevacizumab. For biosimilar aspart, on-site pre-approval US FDA inspection for the company’s Malaysian facility was carried out in September 2021 and commercialisation should happen in due course. The company will also continue to launch its products in other key geographies.
Syngene enhances revenue diversity with its sustained healthy growth and profitability. For fiscal 2021, Syngene accounted for about one-third of the consolidated revenue and operating profit of Biocon. With commercialisation of the recently completed capex and expected ramp-up of operations, Syngene is expected to sustain its operating performance and revenue contribution over the medium term.
Biocon has strong R&D capability, and has several biosimilars and novel biologic products in development in the diabetes, oncology, and autoimmune therapeutic segments. In partnership with Viatris, Biocon’s biosimilar assets received approvals from various regulators and were launched in regulated and semi-regulated markets. The scaling up of revenue and market share of the key biosimilar assets (trastuzumab, pegfilgrastin and insulin glargine) in the US and Europe and successful launch of biosimilars bevacizumab and insulin aspart will be the key monitorables.
Gearing was healthy at 0.56 time as on March 31, 2021, and interest coverage and net cash accrual to total debt ratio were healthy at 30.1 times and 0.4 time, respectively, in fiscal 2021. The company completed a series of fund-raising rounds at its subsidiary, BBL, in the past two fiscals and had built up healthy cash and liquid investments of Rs 3,777 crore as on March 31, 2021, which will be utilised to partly fund the capex and R&D. Biocon, BBL and Syngene plan large annual capex of USD 80-100 million each over the medium term. Biocon plans capex for operationalising its immunosuppressants and API facilities, BBL will undertake capex for commercialising a monoclonal antibodies facility and towards R&D for building a product pipeline, while Syngene will increase capacity of its research and API manufacturing facilities. Given the consolidated net cash accrual of over Rs 1,600 crore per fiscal, strong liquidity, and part funding of capex in biosimilars by Viatris, the financial risk profile will likely remain strong over the medium term.
Weaknesses:
The company will continue to spend extensively on R&D for developing new molecules and biosimilars, particularly for the US and Europe. It remains exposed to long gestation period and uncertainty regarding timing and extent of returns on investments on new molecules given the nature of the drug discovery model. Gross R&D and net R&D (net of capitalisation) were at 13% and 11%, respectively, of operating revenue, excluding Syngene, for fiscal 2021 (13% and 10%, respectively, in the previous fiscal). The R&D expenditure will increase over the medium term, driven by expenses on clinical trials and R&D to build a robust product pipeline. The uncertainty regarding revenue visibility and return on the R&D expense exposes the company to investment risk. However, it has achieved critical milestones in previous fiscals with approvals for biosimilars and launch in regulated and semi-regulated markets in partnership with Viatris, leading to strong revenue growth. The extent of ramp up, particularly in the regulated markets, will be a key monitorable.
The regulatory risks are manifested in increasing scrutiny and inspections by regulatory authorities, including the US Food and Drug Administration (FDA), European Medical Agency, and those in Asian and Latin American markets.
The company faces intense competition in the regulated markets, which is characterised by aggressive defence tactics by innovator companies through introduction of authorised generics, and the presence of several cost-competitive Indian players. In the branded formulations segment, additions to lists under Drug Price Control Order impact product pricing and profitability. |
Liquidity: Strong CRISIL Ratings expects the cash accruals for Biocon at Rs 1,600-1,800 crore against term debt obligation of around Rs 800 crore (including Syngene and BBL) for fiscal 2022. Financial flexibility is high because of unencumbered cash and marketable securities of Rs 3,777 crore as on March 31, 2021. Biocon, BBL and Syngene plan large annual capex of USD 80-100 million each over the medium term, likely to be funded in a prudent mix of cash accrual and debt. |
Outlook: Stable CRISIL Ratings believes Biocon will maintain its strong financial risk profile over the medium term supported by large cash accrual and robust liquidity. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company 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 covering biologics (including branded formulations), contract research, and small molecules and APIs. As on June 30, 2021, the promoters held 60.64% stake in Biocon, foreign portfolio investors held 15.91%, and the balance was held by the public and others. |
Key Financial Indicators
*Adjusted for amortisation of goodwill and intangibles | ||||||||||||||||||||||||
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||
| Facility | Amount (Rs.Crore) | Rating |
| Proposed Short Term Bank Loan Facility | 2 | CRISIL A1+ |
| Proposed Working Capital Facility | 148 | CRISIL AA+/Stable |
| Working Capital Facility | 100 | CRISIL AA+/Stable |
Criteria Details
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