Biocon has increased its focus from statins to branded biotech formulations and contract research services. With branded products like Insugen, BIOMAb gaining size and in anticipation of outlicensing deals in its insulin and MAb programmes, we expect its Biopharma division to trade at 25xFY09E earnings. We see tremendous value in the CRO business and expect it to trade atleast 35xFY09E earnings on account of comparatively higher margins and manifold growth ahead. We have used SOTP valuation and have arrived at a target price of 758. We re-initiate coverage on the stock with a ‘BUY’ recommendationInvestment Rationale Risk Adjusted Growth Strategy Biocon is the only company which has made remarkable progress in the Indian Biotech industry with Oncology and Diabetes as its focus areas. Over the years, the company has entered into strategic alliances, bought out IPR’s in the diabetic space.With a blackened laboratory in place, these initiatives have resulted in minimizing costs and speedier commercialisation. Its R&D subsidiaries have further consolidated their standing having partnered with global biotech majors in areas of complex research and development.Biopharma: To Provide Long Term Stability Biocon was synonymous with ‘Statins’. The emphasis on this segment is reducing with concurrent focus on Biopharma business which includes insulin,immunosuppressants, monoclonal antibodies (MAb’s) and other products. We expect statins contribution to lower down in the near term with higher growth in the
insulin, immunosuppressant segments. BIOMAb-EGFR, its first anticancer antibody is expected to grow more than five fold in size to cross a billion by FY10e. Positive developments on novel insulin delivery mechanisms and monoclonal antibodies
would attract a huge premium by way of outlicensing deals by FY10e. As a part of its strategy of introducing biopharma products at a competitive price in key markets like US & EU, it is scouting for acquisitions in the distribution space. We expect Biopharma division to grow at 22% CAGR over FY07-09E.Contract research services: Poised For Growth...With significant investments underway in Syngene and operations being ramped up in Clinigene, we estimate 43% revenue growth and 40% earnings growth over FY07-
09e. We estimate revenue contribution to increase from ~14% in FY07 to 20% in FY09E and PAT contribution to increase from ~26% to 35% in FY09E. We also do not rule out a possible deal announcement post Bayer’s recent visit.

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