Biocon Shares Gain On Abu Dhabi’s ADQ Investment In Biosimilar Unit

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Shares of Biocon Ltd. snapped a two-day losing streak after Abu Dhabi’s ADQ agreed to pick up a minority stake in the drugmaker’s subsidiary.

The Government of Abu Dhabi’s strategic partner—which invests across sectors such as food and agriculture, aviation, financial services, healthcare, media, real estate, tourism and hospitality, transport and utilities—will invest Rs 555 crore ($75 million) for an 1.8% stake in Biocon Biologics, according to an exchange filing. The deal pegs Biocon’s biosimilar unit’s post-money valuation at $4.17 billion.

In November, the drugmaker had secured $150-million investment from Goldman Sachs for its subsidiary, valuing the business at $3.94 billion. That followed infusions by True North and Tata Capital Growth Fund in January and July 2020, valuing the biosimilar arm at $3 billion and $3.5 billion, respectively.

After the latest transaction, Biocon will have an 89.89% stake in Biocon Biologics.

“This investment is an endorsement of the value that Biocon Biologics has built as a fully integrated pure-play biosimilar company and will enable us to expand our capabilities further,” Kiran Mazumdar-Shaw, executive chairperson at Biocon, was quoted as saying in the filing.

The transaction is subject to customary condition precedents and approvals.

“We arrive at our price target by applying a target P/E multiple of 28x to our EPS estimate for the 12-months ending September 2022,” Morgan Stanley’s Sameer Baisiwala said in a note. “This multiple is a bit higher than the Indian pharma industry multiples, but 36% lower than its five-year average, given ripening of the biosimilars business,” the note said.

Morgan Stanley has cited sales ramp-up from recent launches, approval of the second wave of biosimilars, Syngene ramp-up and listing of the biologics business as some of the key upside triggers for the stock.

Shares of Biocon gained as much as 2.9% in early trade on Friday to Rs 467.95 apiece. Of the 27 analysts tracking the stock, 15 have a ‘buy’ rating, seven suggest a ‘hold’ and the remaining five recommend a ‘sell’. The stock is trading 5.8% higher than its 12-month consensus price target of Rs 438 apiece.

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