Value chain

Biocon Biologics’ Viatris deal to help value chain, but risks linger: analysts

Analysts expect the acquisition by Biocon Ltd. for $3.34 billion of Viatris Inc.’s biosimilar assets underpins its value chain, but concerns about fierce competition, costly transaction valuation and leverage risk persist.

Biocon Biologics Ltd., a wholly owned subsidiary of Biocon, will pay $2 billion in cash to Viatris. It will issue $1 billion of mandatory convertible preferred stock – equivalent to at least 12.9% of the capital – to Viatris, on a fully diluted basis. It will also pay up to $335 million in 2024, including $175 million for the acquisition of another biosimilar product Aflibercept injection (to treat age-related blurred vision and blindness).

Of the initial cash payment, $1.2 billion will be financed with debt, according to the company. The remaining $800 million will come from a capital injection from parent company Biocon.

This should lead to a five-fold increase in debt for Biocon Biologics. Investors were worried, which sent Biocon shares down the most in 13 months on Monday after the deal was announced.

Kiran Mazumdar-Shaw, Executive Chairman of Biocon, in her emailed statement to BloombergQuint, argued that the debt assumed in this transaction will be supported by a broader Ebitda base, a combination of Biocon Biologics revenue streams, Viatris and vaccines, and a future injection of equity from existing shareholders.

Moody’s Investor Service considers the transaction “credit positive” for Viatris. But earnings pressure in Viatris’ core business could offset its credit profile. The rating agency maintained its senior unsecured Baa3 (stable outlook) rating on Viatris.

Biocon stock is down 4.3% so far this year, compared to 9.11% losses in the Nifty Pharma index. He’s the fifth-best performer in the 20-stock gauge.

Shares of Biocon fell more than 1% to Rs 344.85 each. Of the 21 analysts who track Biocon, 12 maintain a “buy,” five recommend a “hold,” and four suggest a “sell,” according to Bloomberg data. The 12-month consensus price target implies a 17% upside.