Indian pharma industry saw its sunny days between 2010 and 2015 when drug patents worth $100 expired. Indian companies saw phenomenal growth due to generics exports. The Nifty pharma index went up 4x during this period while individual companies became 10 baggers and more. After this bull run, growth normalized and the sector went through a lean patch for many years. Nifty Pharma Index regained its 2015 peak only in 2021.
As per reports, patents of branded drugs worth $200 Bn are set to expire over the next 5 years.
Unlike last time when generics ruled the roost, this time a major part of the expiring patents are biologic drugs which are made in living organisms. Their generic versions are called biosimilars and these are much more complex than normal generics that Indian companies could produce with ease from 2010 to 2015.
In India, Biocon is the only listed company which has been investing heavily into biosimilar research and capacity building. Biocon’s management has stated that it will be able to cater to the end market worth $100 Bn in the upcoming period.
As always, there are a few ifs and buts. Biocon carries a pretty large debt of 18000 translating to D/E of 1x which is never a great thing. Secondly, while there is not too much competition within India, the global biosimilar competitive landscape has intensified and it is not going to be a cakewalk for Biocon. And finally, there is always the challenge of getting FDA approvals. In fact, Biocon has had a couple of rejections from the FDA in 2023 for its insulin and Avastin biosimilar.
There is never a risk-free story in the market and if there is one, it is bid so high that no juice is left in it. Biocon’s lacklustre stock price over the last three years is a reflection of the uncertainty about its chances of success in capturing the upcoming opportunity. If things go Biocon’s way, there could be sunny days for its shareholders who have been at the receiving end since 2020 with its stock price almost halving during this period.