Biocon Biologics on Monday announced a transformational deal to acquire partner Viatris’ global biosimilars business for up to USD 3.335 billion in cash and stock. The acquisition of the business, which is estimated to generate revenues of USD 1 billion next year, will create a unique, fully integrated global biosimilars enterprise.

Kiran Mazumdar-Shaw, Executive Chairperson, Biocon and Biocon Biologics spoke to ETNOW’s Principal Research Analyst Pankaj Poddar following the announcement.
In the interview, Ms Mazumdar-Shaw explains the rationale for this deal, which is going to be value accretive for Biocon Biologics. She lays out the advantages that accrue to Biocon Biologics, including the ability to leapfrog into the advanced markets by bolting on Viatris’ commercial engine in the markets of U.S., EU, Japan, Australia, Canada etc.

In the interview, Ms Mazumdar-Shaw reiterated her confidence that Biocon Biologics is in a position to very comfortably service the debt that it plans to take on to finance the acquisition. The debt financing will be supported by a larger EBITDA base resulting from the consolidation of the income streams from Biocon Biologics’ own business, the recently acquired Viatris business and vaccines sales from the Serum deal.

She said this deal is attractive from Biocon Biologics’ point of view. because it is going to be “margin accretive, value accretive, an EPS accretive.”

You can read the full transcript of the conversation below:

Pankaj Poddar: Hi Ma’am, welcome to ET Now. Thank you so much for giving us time and explaining this important deal for the company. First thing, I would want our viewers to understand on a deep dive analysis is that earlier it was the same product that the company (Biocon Biologics) used to make but was marketed by somebody else and marketed around the world also by somebody else (Viatris). Now that comes to Biocon. So how does it change the game for the company?

Kiran Mazumdar-Shaw: To very simply answer that question, we were getting a much smaller part of the economic benefit of this particular partnership (with Viatris) and today we get the whole economic benefit of both topline and EBITDA, and that’s really very value accretive for us. I believe that this has been a very well struck deal. As you can see from the U.S. investors’ point of view they believe that Viatris actually sold this “crown jewel” to us at a very reasonable level. In fact, they feel that it was sold very cheap. Our investors think otherwise. But I don’t agree. I think it is a fair deal for both. I think it’s extremely value accretive for us. We have shared certain numbers and even if you go by the numbers that we have extrapolated for calendar year 2023, you can see that the accretive value for us is $750 million (revenue) and a $250 million EBITDA, which is a 33% margin. I think the people have misunderstood and not understood what the accretive value means to us. Because they have just looked at it as $1.1 billion topline of Viatris and a $250 billion EBITDA, but I don’t think they have factored in the $450 million that we (Biocon Biologics) were ascribing to this number which has now been corrected. So, if you think of the accretive value to us, it is very, very attractive.

Pankaj Poddar: You are acquiring Viatris’ business at about 15 times EBITDA. When I see some generic companies trading, and I want to clearly specify generic companies in U.S. not biosimilars, they would be trading like 14-15 times. So as an industry person, firstly do you think that these two are comparable (in terms of) growth outlook, margin outlook, approval outlook? The kind of effort that goes in is completely different.

Kiran Mazumdar-Shaw: Completely different! You’re comparing apples with oranges. I think Biosimilars are getting much higher valuation because of the complexity of the business, because of the fact that it is not a crowded market and the price erosion is much lower than what you will see in a generics business. So, I personally feel it is a great deal for us. We are creating a world-leading biosimilars company out of India and I think it is going to be hugely value accretive for us. So when I add to these numbers our own other value streams coming out of Serum and our own non-Viatris business, I think you are going to see a very attractive return on investment. We are already seeing a margin accretive business, a value accretive business, an EPS accretive business. I don’t think you can find any flaw in this particular transaction from Biocon Biologics’ point of view.

Pankaj Poddar: When we talk about the size, you know Sun Pharma once they attained the size in U.S. they really grew multifold. Similar was the case for it in India. Aurobindo is now 5-6% of the U.S. market share. So once size comes in a growing market where price erosion is limited, how can operating leverage actually work in company’s favour?
Kiran Mazumdar-Shaw: Well obviously that’s what we are focusing on. When you think about the 7 assets that we have already started to market in advanced markets, which we are actually now acquiring. R&D investments are behind us. It is really the commercial opportunities that we are pursuing and that is the nature of the business that we are acquiring. The rest of the business is really a pipeline of our own products going forward as you know. And some of them have been partnered with Mylan, like Toujeo (Insulin Glargine 300 IU) and Perjeta (Pertuzumab). Aflibercept is something we have an option on. Apart from a few (assets) partnered with Sandoz, most of the pipeline is our own products and our own programs. This allows us now to pursue our own path forward.

Pankaj Poddar: When we talk about your own path forward, year after year you have made R&D investments and you’ve proved to the market and investors what it means for Biocon and how it is successful. Now can you tell us when it comes to distribution and marketing, what sort of investments will the company need to do? Every time when there were some market share losses, it was about the marketing player but now that onus comes to Biocon. So what sort of investments will be needed for that?

Kiran Mazumdar-Shaw: This allows us to leapfrog into the advanced markets through our own commercial presence. Bolting on this commercial engine could have been done in two ways. One, was to bolt it on and hit the ground running like we did today. That means we are leapfrogging into the commercial space. Or you would have had to build it out on your own. Which is why we had given ourselves 5 years in which to build out our own commercial engine. This (acquisition) accelerates the process because we now inherit a functioning, running commercial engine. I think that is what is attractive about this deal. For two years we also have a transition services arrangement with Viatris, and that helps us significantly because it allows us to rapidly and seamlessly transfer this knowledge and infrastructure from Viatris to Biocon Biologics. I think this is a no brainer in terms of the deal. It’s going to be game-changing for us, it’s transformational, and like I said it is an inflection point in our journey.

Pankaj Poddar: For Biocon Biologics, the company has in the last 2 years done a vaccination deal which gives it a growth in volumes, it has done now this deal which as per you is margin accretive and it gives a leap forward to the next space and most of the investments that the company needed to do are done. So, over the next 3 years, keeping all these 3 engines will start they to fire for the company?

Kiran Mazumdar-Shaw: I think Biocon is in a very strong state. The Research Services business is certainly firing and is at an inflection point of growth. Biocon’s own Generics business is firing and is at an inflection point of growth. And this is the biggest inflection point for the Biologics business, which is going to drive most of the growth for Biocon. So I think if you look at it that way and if you look at the fact that we are very comfortable servicing the debt that we have planned to take on, I think this is a great deal for us and we are very comfortable with the debt levels. In fact, I think we have been too conservative. So, it’s up to us to decide what level of debt we want to raise. But I can tell you that with half a billion dollar of EBITDA that we can generate and more, I think the payback is very simple.

Credit: This interview was aired on ET Now on Wednesday, Mar 02, 2022.

Published by kiranshaw

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