| Biocon Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities The 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 'CRISIL AA+/Stable/CRISIL A1+' ratings on the bank facilities of Biocon Limited (Biocon). |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Biocon and its 16 subsidiaries (including Syngene and BBIL) 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 has amortised goodwill on acquisition and intangibles (including products under development) over five years. |
| 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, the company has presence primarily 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. Biocon has strong brands such as Insugen (rh-insulin), BASALOGTM (insulin glargine), BIOMab-EFGR (nimotuzumab), BLISTO (glimepiride + metformin), CANMAbTM (trastuzumab), KRABEVA (bevacizumab), Evertor (everolimus), TACROGRAFTM (tacrolimus), and ALZUMAbTM (itolizumab) across its biosimilar and novel biologic portfolio. It is also one of the leading players in insulin in Asia, with its global capacities making it one of the leading insulin producer globally. Biocon also is a leading supplier of complex, small molecule APIs across the cardiovascular, anti-obesity and immune-suppressants therapeutic areas. * Strong and diversified revenue streams Revenue is diversified across biologics (31% of revenue), contract research (32%), small molecules and APIs (33%) and branded formulations (8%), including the inter segment revenue (4%). Small molecules, the flagship segment, grew 18% in fiscal 2020, led by healthy demand, new product registrations and improved pricing scenario in regulated markets. In small molecules, Biocon has consolidated its position by leveraging its inherent strengths in fermentation technology and complex chemistry. The company is an established player in the branded formulations segment (8% of revenue in fiscal 2020). 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 emerging segments continue to require large investment for R&D and capex, the company is supported by steady cash flow from its established small molecules and branded formulations segments. As on March 31, 2020, the company has achieved critical milestones in the biologics segments with approvals and launches. In partnership with Mylan, Biocon's three biosimilar assets were commercialised in the US and Europe. Fulphila (biosimilar pegfilgrastin) and Ogivri (biosimilar trastuzumab) have been launched in the US, and Semglee (biosimilar insulin glargine) and Ogivri (biosimilar trastuzumab) along with the in-licenced biosimilar Adalimumab were launched in Europe. The company will continue to launch the products in other key geographies. Syngene enhances revenue diversity with its sustained healthy growth and profitability. For fiscal 2020, Syngene accounted for 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. * Healthy pipeline of biosimilar products 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 Mylan, Biocon's three biosimilar assets received approvals from various regulators and were launched in regulated and semi-regulated markets. The 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 Gearing was conservative at 0.37 time as on March 31, 2020, and interest coverage and net cash accrual to total debt ratio were healthy at 26.7 times and 0.5 time, respectively, in fiscal 2020. Financial flexibility is strong because of unencumbered cash and marketable securities of Rs 1857 crore as on March 31, 2020. Biocon, BBIL and Syngene plan large annual capex of around USD 100 million each over the medium term. Biocon plans capex for capacity expansion in monoclonal antibodies and APIs for immunosuppressants. BBIL will undertake capex for 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 1,400 crore per fiscal, healthy liquidity, and part funding of capex in biologics by Mylan, the financial risk profile will likely remain strong over the medium term. Weaknesses: * Uncertainty in payoffs from a high R&D-driven model in biosimilars and novel biologic segments, 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. It remains exposed to long gestation period and uncertainty regarding timing and 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) were at 12% and 10%, respectively, of operating revenue, excluding Syngene, for fiscal 2020 (13% and 8%, respectively, in the previous fiscal). The R&D expenditure will remain large over the medium term, driven by expenses on clinical trials and R&D. The uncertainty regarding revenue visibility and return on the R&D expense exposes the company to investment risk. However, the company has achieved critical milestones in fiscals 2018 and 2019 such as approvals for biosimilars and launch in regulated and semi-regulated markets in partnership with Mylan, leading to strong revenue growth in fiscal 2020. The extent of ramp up, particularly in the regulated markets, will be a monitorable. * Susceptibility to regulatory uncertainties and intense competition The regulatory risks are manifested by 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. In its API facility at Bengaluru, the company has addressed the observations raised by the US FDA and the inspection has been closed with Voluntary Action Initiated status. The company also faces 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 several cost-competitive Indian players. Consequently, Biocon's small molecule segment has witnessed pricing pressure in the past'the segment declined 8% in fiscal 2018. In the branded formulations segment, additions to lists under Drug Price Control Order impact product pricing and profitability. |
| Liquidity Strong |
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Cash accrual is expected at Rs 1,500-1,700 crore annually against term debt obligation of around Rs 700 crore (including Syngene and BBIL) for fiscal 2021. Financial flexibility is high because of unencumbered cash and marketable securities of Rs 1857 crore as on March 31, 2020. Biocon, BBIL and Syngene plan large annual capex of around USD 100 million each over the medium term. The capex is expected to be funded in a prudent mix of cash accrual and debt. |
| 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. |
| Rating Sensitivity factors |
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Upward factors * Significantly high revenue growth driven by increased market share, and improvement in profitability above 30% on a sustained basis * Continued healthy capital structure, with gearing below 0.5 time * Successful commercial launch and revenue ramp-up of insulin glargine, trastuzumab and pegfilgrastim in regulated markets Downward factors * Decline in revenue growth and in operating margin below 20% on a sustained basis * Considerable weakening of the financial risk profile because of larger-than-expected, debt-funded capex or acquisition * Any adverse US FDA regulatory action resulting in a material impact on the operating performance |
| 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 covering biologics (including branded formulations), contract research, and small molecules and APIs. |
| Key Financial Indicators | ||||||||||||||||||||||||
#includes gain from sale of shares in subsidiary of Rs. 344.7 crore | ||||||||||||||||||||||||
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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 and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| 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 various bank facilities | ||||||||||||||||||||||||||||||
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