Biocon shares rise 5% after USFDA VAI approval

Biocon’s shares surged by 5% in early trade on November 11 following a significant regulatory update. The USFDA or Food and Drug Administration, granted Biocon's Bengaluru biologics facility a “Voluntary Action Indicated” (VAI) status. This news has attracted investor interest, making it an opportune moment to invest in stocks like Biocon.

What does VAI mean for Biocon?

The VAI classification is a positive regulatory outcome. It indicates that while minor issues were found during inspections, they were not serious enough to prompt enforcement actions. This approval allows Biocon to continue operations without additional regulatory hurdles, boosting investor confidence.

The Bengaluru facility underwent a comprehensive FDA inspection from July 15 to 26, covering:

• Six biologics manufacturing units (four drug substance and two drug product facilities)
• Five analytical quality control labs
• Four microbiology labs
• Two warehouses

This clearance is a step forward, though regulatory approval for Biocon’s Malaysia unit remains a key focus.

Mixed quarterly performance

Despite the regulatory win, Biocon’s Q2 financial results revealed significant challenges:

• Net profit dropped 84% year-on-year to ₹27.1 crore from ₹172 crore.
• EBITDA margin fell to 19% from 21% in the same period last year.
• Revenue rose marginally by 4% to ₹3,590.4 crore, up from ₹3,462 crore.

Analysts attribute the weaker margins to reduced operating leverage and lower gross margins, although a price target of ₹350 has been maintained.

Growth potential ahead

Looking ahead, analysts expect Biocon to rebound in the latter half of FY25. Key growth drivers include:

• Expansion in the biosimilar pipeline
• Opportunities in GLP-1 products
• Research services benefiting from CDMO tailwinds

The upcoming launches of biosimilars such as aspart, bevacizumab, and ustekinumab, alongside regulatory clearances for its Malaysia unit, are seen as significant rerating triggers.

Key takeaways

1. Biocon’s shares surged 5% on November 11 after the US FDA approved its Bengaluru unit with VAI status.
2. Quarterly results revealed an 84% drop in profit, but revenue increased by 4%.
3. Investors eye regulatory clearance for the Malaysia unit and upcoming biosimilar launches as catalysts for growth.
4. Analysts remain optimistic about Biocon’s medium-term potential, making this an attractive time to invest in stocks like Biocon.

Investors may consider this as an opportunity to invest in stocks with promising growth prospects driven by regulatory progress and pipeline expansions.