Investors looking to take advantage of the large and rapidly growing market for biosimilar drugs might want to keep an eye on a potential deal cooking between the Pfizer Inc. (PFE, Financial) spinoff Viatris Inc. (VTRS, Financial) and an Indian biosimilar company called Biocon Limited (BIOCON.NS).
Biocon is contemplating buying out Viatris’ stake in the merged entity and listing it as a standalone biosimilar company that could be valued at $10 billion, according to a report from the Indian financial site Moneycontrol.
The two companies are already working together on several biosimilars, one of which is the insulin drug Semglee, which became the first interchangeable biosimilar in the U.S. In addition to Semglee, which works like Sanofi’s (SNY, Financial) Lantus, the companies have partnered on biosimilars to AbbVie Inc.’s (ABBV, Financial) Humira, Roche’s (RHHBY, Financial) Herceptin and Avastin and Amgen Inc.’s (AMGN, Financial) Neulasta, among others.
A biosimilar, as the name implies, is just like a biological drug already approved by the Food and Drug Administration. To get the agency’s stamp of approval, a biosimilar must demonstrate it works in the same way as what is called the “reference drug,” which often costs a great deal more than the copy.
The biosimilar opportunity is huge and growing rapidly. According to Mordor Research, it was valued at approximately $28 billion in 2020, and it is expected to hit $103 billion in 2026, a lofty CAGR of nearly 25%.
It comes as no surprise that some of the largest drug companies want to get in on the action, including such heavy hitters as Biogen Inc. (BIIB, Financial), Pfizer, Novartis (NVS, Financial) and Amgen, according to FiercePharma. Meanwhile, Merck & Co. Inc. (MRK, Financial) and others are backing off from the business.
Biocon has been praising the strengths of both companies. Under their current arrangement, Biocon handles manufacturing and biologics development while Viatris is responsible for regulatory strategy and getting the biosimilars into the marketplace.
However, despite their rosy prospects, neither Biocon and Viatris have been kind to shareholders in the recent past. Shares of Biocon trade at just under $5, well off its 52-week high of near $6.50. The stock moved very little on news of the potential buyout of Viatris, which has been an even bigger disappointment to investors. Its shares are trading at $12.75, down about one-third from the company's 52-week high. In the third quarter, Viatris did have some good news, beating the Zacks estimate for both sales and earnings, but it failed to move the price needle.
Investment-wise, Bernstein’s biotech analyst Ronny Gal called Viatris “a disappointment” in an investor note in July, reported Endpoints News. He pointed out that the company has launched multiple biosimilars across the U.S. and Europe but “the share they are holding is in the single to low-double digits and price declines should mostly offset unit gains. At that time, he suggested the company might want to see if its commercial strategy is on point.
The question on investors’ minds should be, “Will combining two laggards make one go-getter?" If so, the addition of Viatris might be just what Biocon needs to push its shares higher.
